Earnings Call: Q3 2019

Nov 13, 2019

Ladies and gentlemen, thank you for holding, and welcome to the ABN AMRO Q3 2019 Analyst and Investors Conference Call. At this moment, all participants are in a 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 Dijkhuysen. Go ahead, please. Thank you very much, operator. Good morning, everybody. Welcome to the investor and analyst call for ABN AMRO's Q3 results. I'm joined here by Clifford Abrams, our CFO and Tanja Koppen, our CRO. I will take you through the key developments in the last quarter, including the investigation by the Dutch prosecutor. Clifford will go through the details of our Q3 results and run through capital. And Tanja will update you on the developments in our loan portfolio. Turning to Slide 2, I will update you now on the Q3. The last quarter for us was mixed. Operationally, the bank is doing well, delivering an ROE of 11%. And I'm pleased with our robust financial results and solid operational delivery during the quarter. Net interest income remained strong also on the back of the profitable growth of the mortgage book. Excluding divestments, net fee income increased this quarter. And excluding detecting financial crime or DFC related costs, costs continue to trend down due to our strict cost discipline. Impairments continue to be moderate at 16 bps. We are making good progress on the CIB refocus as demonstrated by the ROE of 9% for this quarter. We are well capitalized and well positioned to manage the transition through TRIM and Basel IV. Meanwhile, we also face challenges. As you are well aware, the bank is currently subject to an investigation relating to requirements under the Dutch Act of the Prevention of Money Laundering and Financing of Terrorism. More about that later. A major sector challenge is the continuing low interest rate environment, hence our strong focus on operational performance. We continue to execute our strategy and purpose banking for better for generations to come. I was very proud to personally have signed the United Nations Principles for Responsible Banking on behalf of ABN AMROs, one of the 130 founding banks. We believe that responsible relations with our clients, and Puyi and society as a whole gives us an advantage in building trust, supporting sustainable development and creating positive impact through banking. This year, we have once again been ranked among the world's most sustainable banks in the annual Robeco SAM assessment, achieving 79 out of 100 points, putting us in the top 10% of the most sustainable banks. Let me now update you on some developments in the mortgage market on Slide 3 as this is one of the drivers of our solid operational performance. I'm really pleased that in the Q3, our market share in mortgages increased 22% from 17% last quarter. We currently see good margins in the market, so we let our market share move up. Our strength in the mortgage market is supported by new products such as the mortgage solution for seniors to cash out on home equity as well as the 30 years fixed mortgage offer that we do now as part of our mortgage originator distribute platform. We also benefit from our strong operational capabilities. We have a speedy turnover turnaround time for new mortgage loan applications and this is important for clients in the current housing market. Also more than 2 thirds of our mortgage meetings are done via video banking, enabling a fast, flexible and personal service. As the Dutch economy is expected to grow by around 1% next year, overall the outlook for the mortgage book remains positive. To update you on the interest rate environment and our actions, I take you to slide 4. As I said before NII was strong this quarter despite a challenging interest rate environment. Our asset margins have remained resilient as we are focused on margins over volume. We also remain focused on asset quality in this part of the cycle. Even so, we continue to expect further pressure on NII going forward of around €20,000,000 sequential quarterly impact in 2020 through lower deposit margins. As you are aware, we already charge negative rates to CIB clients and the largest clients in Commercial and Private Banking, and we have followed a step by step approach. We have decided that we will not charge negative rates on deposits below 100,000 This commitment €100,000 sorry. This commitment means around 95 of our clients will be safeguarded from negative rates, representing approximately 40% of our deposit base. In addition, around 40% of deposits are above €100,000 threshold and are currently not subject to negative rates. Of course, we also focused on developments on developing more fee propositions as well as opportunities to increase fees where we can, for example, in Commercial Banking and Cybersecurity and bookkeeping propositions. In Retail Banking, great focus on investments and insurance and in CIB, our increasing focus on originate to distribute. Now let me update you on the investigation of the Dutch prosecutor in our DFC activities on Slide 5. September, we were informed by the Dutch public prosecutor that we are subject of an investigation relating to requirements under the Dutch Act on the Prevention of Money Laundering and Financing of Terrorism. The investigation follows our announcement last August that we are to review all our retail clients in the Netherlands and that sanctions such as an instruction fines may be imposed by the authorities. The investigation focuses on whether we have complied with requirements to having client files in good order, the timely reporting of unusual transactions and the prompt discontinuation of client relationships. For us, it's a key priority that we fulfill our duties and responsibilities as a gatekeeper of the financial system in detecting financial crime. While the timing of the investigation is uncertain, we are getting on with ensuring we are fully compliant and future fit. We have already centralized our BFC activities enabling further specialization, consistency and leverage knowledge across the bank. As you know, we have remediation programs running at ICS, Commercial Banking and Retail Banking. For these programs, we have now taken in total EUR 226,000,000 in provisions for external expenses alongside significantly increasing BAW spend on DFC. We expect the step up in spending to continue. We have completed a comprehensive independent review of our organization to ensure full compliance with legislation. We have incorporated recommendations arising from this into a new delivery plan in collaboration with the regulator. We will further update you on this in Q4. We're also in dialogue with public parties to investigate further cooperation to fight financial crime and possibilities of setting up a joint organization to monitor payment transactions with other Dutch banks. We are pleased with the Dutch Cabinet's plan to clamp down on money laundering, improving cooperation between the government and banks and among banks. Strict compliance is our license to operate, so we remain vigilant in detecting financial crime and we'll continue to make the necessary investments. I would now like to hand over to Clifford to take you through our Q3 results. Clifford? Thank you, Kees. Turning to Slide 6. As Kees mentioned, we are pleased with our robust 3rd quarter result with a net profit of €558,000,000 Net interest income remains strong and fees are higher when you exclude the sale of starter. Other income was low this quarter, mainly due to low private equity gains, which can be volatile. Operating expenses are well controlled. I'm pleased that impairments are moderate again this quarter at 16 basis points. Tanja will give you more background on this. I'll guide you through the individual line items on the next slides, but first our client lending on Slide 7. Kees updated you on developments in the mortgage market. I'm pleased that our mortgage volumes are somewhat higher again this quarter, reflecting our strong market share of new production of 22%. We continue to deliver on our CIB refocus and the more capital efficient business model is shaping up. So total CIB volumes are down somewhat this quarter. We've reduced our exposure specifically in TCF, Trading Commodity Finance, including diamonds and global transport and logistics. SME lending saw a slight decline reflecting our focus on margins. Turning now to NII on Slide 8. NII remained strong this quarter. Let me remind you that last quarter included €45,000,000 in 1 offs largely related to DSP. As you can see on the right, lower liquidity management costs largely offset the around €20,000,000 decrease in NII due to low interest rates. Liquidity management costs were lower again this quarter largely due to the roll off of some larger FX positions. The €20,000,000 decrease due to low interest rates is in line with our guidance from last quarter of around €20,000,000 sequentially into 2020, excluding mitigations. It's possible that interest rates have recovered somewhat in the last few weeks after first declining materially following our Q2 results. And looking through the recent volatility, our outlook on deposit margins has not changed materially from Q2. Hence, our guidance remains the same. Following the announcement by the ECB, we expect a positive net impact of the ECB deposit tiering of approximately €60,000,000 per year and this will mitigate some of the impact. In addition, we continue to work on mitigating the impact of the low interest rate environment. As discussed by Kaes, we're developing new products, selectively charging negative interest rates to clients and continue to work on our cost initiatives. As we've said before, we expect NII to be around €1,600,000,000 next quarter. Turning now to fees and other income on Slide 8. I'm pleased that excluding divestments of Sarta and Channel Islands, fees are higher somewhat compared to last quarter due to the acquisition of private banking activities in Belgium and a strong quarter by Clearing. As you know, in CIB, the business model is becoming less capital intensive and is starting to generate more fees from distribution. We're also working hard to grow income with initiatives on investments and insurance in retail. Other operating income was low, as I said previously. In general, last year, all volatile items were relatively high, while this quarter more or less every item was low. So truly some volatility there. This is especially the case for private equity gains, which were €107,000,000 in Q3 last year compared to only €20,000,000 this quarter. Ex VA was actually negative this quarter driven by low interest rates and increasing derivative exposures. We maintain our long term guidance for other income of around €125,000,000 per quarter, although it can be volatile as you've seen in any one quarter. Now moving to costs on the next slide. I'm pleased with our performance on costs, which have continued to steadily trend down for a number of years now as a result of our strict cost discipline. As you can see here in the left hand chart, personnel expenses continue to decline reflecting lower FTEs. However, other expenses increased this quarter due to higher DFC costs, including an additional provision for commercial banking of €27,000,000 In the right hand chart, you see we have realized further cost savings of €53,000,000 versus Q3 last year, bringing the total to a run rate of almost €850,000,000 and on track for €1,000,000,000 target in 2020. Year to date, we're running at a cost level of around €5,000,000,000 dollars annualized excluding remediation provisions. And going forward, we expect further material cost pressure for DFC and ongoing wage inflation, but we see some offsetting movements in respect to cost programs. We do not expect major cost programs in the near future, but we'll continue our proven approach of executing ongoing cost initiatives. For example, the greater use of cloud based services, the introduction of DevOps in our IT teams. And we also continue the product rationalization and process improvement across the business lines and support functions. So continuing steady progress on costs, which will balance the cost inflation that we see from DFC and ongoing wage inflation. I will now hand over to Tanja to pick up impairments on Slide 11. Thank you, Kjellberg. 3rd quarter impairments were moderate at €112,000,000 This amounts to 16 basis points cost of risk for the quarter year to date, well below the 2 to cycle cost of risk. We are pleased with our progress in de risking CIB and we are happy to see that this is paying off. Impairments in CIB were modest and are mainly in energy, in offshore services and up and midstream and in diamonds. Impairments in Commercial Banking were due to the offshore support vessel sectors and a new file in the utility sector. We expect an uplift in impairments in Q4, reflecting in particular in Offshore Services and in Retail Banking, predominantly from model refinements. We reconfirm our full year expectation of below the through the cycle cost of risk of 25 to 30 basis points. I'll now hand back to Tipper to discuss capital. Thank you, Tanja. So turning now to Slide 12, you can see our Basel III capital position remains strong with a CET1 ratio of 18.2%, well within our target range. A small uplift reflects the divestment of our share Equin's Worldline and the Channel Islands. No additional TRIM or model review add ons were recorded in Q3 2019. Looking forward, we do expect a serious impact on Basel III RWAs from TRIM, model reviews, definition of default and the announced risk weight floor mortgages by the DNB taking place in 2020. From our perspective, all of this is front loading of Basel IV for which we are already well positioned. We have a strong Basel IV capital position at around 13.5%, again excluding our year to date profit. Our leverage ratio was also stable at 4.2%. As you know, our prudent capital management reflects the context of commercial and economic circumstances, including lower for longer as well as a tough regulatory outlook. We will decide on our dividend at full year. I'll now hand back to Kees to update on our targets. Thank you, Clifford. Operationally, the bank is doing well. And I'm pleased, as I said, with our ROE of 11% this quarter well-being within our target range. However, we need to recognize that the sector is currently facing major challenges, including the continuing low interest rate environment. We are under investigation by the Dutch prosecutor. Strict compliance is our license to operate, and we will continue to make the necessary investments. Given the lower for longer interest rate environment, it will take longer to reach our cost income target of 56% to 58%. Our capital position and capital generation remains strong. And with a Basel III portfolio of over 18%, we are well positioned to manage the transition to TRIM and Basel IV. As Clifford indicated, dividend is a year end decision. So before we go Q and A, I would like to briefly recap the highlights on Slide 14. As said, the last quarter was mixed, but I'm pleased with our robust financial results and solid operational delivery during the quarter given challenges across the sector. While dealing with these challenges, we continue to take the necessary action and to focus on our operational delivery. Now I would like to ask the operator to open the call for questions. First question is from Mr. Pavel Dystik, Goldman Sachs. Go ahead please. Good morning and thank you for the presentation. I have two questions. So the first one is on cost and you highlighted that you will no longer be able to reach your cost income target and you made some remarks on your absolute cost base. But if I was wondering if you can dive a little bit deeper into that. Are you still confident that you can get to around €5,000,000,000 cost base next year? And can you give us a little bit more sense and at least the scale of cost inflation that relates to the step up in those costs related to financial crime that you mentioned in your opening remarks? That would be very useful. Then the second question is on your pricing of deposits. You are again clear that you will not charge negative rates to deposits below €100,000 But you also highlighted that 40% of balances would not fall under this restriction and are currently not charged negative rate. So can you help us understand what exactly is the strategy there going forward? And how it differs between, let's say, retail, private banking and corporate clients? Essentially, what prevented you as you see now from charging the rates negative rates to those With respect to the pricing of deposits, it's correct indeed. With respect to the pricing of deposits, it's correct indeed that around 40% of our deposit base which is around 100,000,000,000 euros is not at this moment in time has negative rates. What we've done in the past is that, as I said, we charged our CIB clients and our largest CB and private banking clients. We started with thresholds above 25,000,000 €25,000,000 went down to €10,000,000 We see lower amounts in the market right now. We are not allowed to guide on that at this moment in time. So you will have to await our action and then we will communicate. That's the way we have done it in the past. And if we take action in the future, we will do the same. But you're right, there's 100,000,000,000 dollars let me put it that way, territory where we can apply negative rates going forward. Pavel, on cost, I'll just say I'm looking at Page 5 in the slide deck. But as I said, we're traveling at around 5,000,000,000 costs already. So that's our base position. And that's consistent with our planning that we've set out in the past. And that already includes the step up in DFC costs that you see on Page 5. So you see year to date, business as usual, detective financial crime costs actually well ahead of the total spend for last year, so annualized step up. And we expect that step up to continue, I would say, significantly in relation to amount of around a little over $100,000,000 for the 1st 9 months. I think going forward, we've taken benefit of provisions in the past and that will shield some of the incremental costs going forward. You can see the significant provisions we've taken on Page 5. But we do expect BFC business as usual costs to step up further. And in due course, they may well come down, but for the time being, it's an increase. What I would highlight, and I use the word balance on the presentation is you should see those incremental DFC costs balanced by our further cost saving programs. And we're pleased with progress at 850, but that means we have another 150 of cost savings further to go through next year. So quite some potential and that would give us a balance. I know the consensus that you indicated, but I'll leave it at that and we'll give further guidance next year as we're closer to the results. I think on actually just on costincome ratio, just I sent a final comment there. I think as Kees indicated, we think the cost income ratio target will be delivered later, primarily as a result income coming down, not cost. So I talked about factors balancing out on the cost front, but it's really the income movement that's caused us to defer that. And I don't think that should come as much as a surprise. So we reconfirmed the $20,000,000 sequential reduction and that gives rise to 100 of 1,000,000 of NII pressure, which we can't mitigate over a period of 1 year. So it's really that that's prompted us to indicate today that the target will take longer to achieve. Any further questions? I don't think so, sir. I'm going to follow-up with the next question. It's from Mr. Adrian Sighi, IRBC Capital Markets. Questions from my side, one on capital and one on NII. On capital, your target capital ratio of 17.5% to 18.5%. How confident are you that it captures the latest uncertainty on the Dutch prosecutor investigator? Or put it differently, are you still aiming for additional distribution above 18.5% range while the AML investigation is ongoing? And on NII, you mentioned that you maintained a €20,000,000 quarterly headwind. And while it's understandable, given the volatility in the swap rate, it has been showing quite a material improvement versus the 7th August, almost 23 basis points to now 27 basis points negative. Can you give us an indication what the $20,000,000 figure would translate into assuming the current run rate on the swap? Thank you. Thank you for your questions. I'll take the first one. Clifford, can you take the second one? Yes. On capital, our guidance has not changed. The guidance we have had before as a result of the investigation, of course, at the end of the year, we will take everything into account. So also that but the 7.5, 8.5 and where we are at this moment in time has not changed. Yes, I think on NII and sensitivities, I think we're one of the few banks that give very clear indications of the financial impact. So I think sensitivities would be for the best practice in this respect. I'm looking at the rates in Q1 and Q2 and Q3, and we've given guidance. So in Q1, we said CHF 10,000,000 in Q2, we said CHF 20,000,000 and now we're saying roughly CHF 20,000,000 I think the rate picked up relatively recently. It's a lot really at the tail end of Q3 and October, November. And it looks to me like it's somewhere in between. But I think given those data points that I've set out, you can form your own views. When we give guidance, we don't mark to market every quarter. We reflect on our own views of interest rates as well. So it's a judgment rather than a specific estimate reflecting forward rates. And we do see the benefit rates having picked up. And if they are sustained, we'll update our guidance again in Q4. But let's see how sustainable these rate increases are. Perfect. Thank you very much. Next question is from Mr. Steven Nedialkov, Citi. Go ahead please. Hi, good morning. It's Stefan from Citi. Two questions from me as well. Just coming back on the provisions for KYC Financial Crime Detection, etcetera, euros 226,000,000 Could you provide us with a breakdown of what those provisions were for? Was it extra external costs for consultants? Is it IT, hardware, software, etcetera? Color on that would be extremely useful. And also related to that, I see in your report, you talk about 200 to 240 FTEs more or less being hired for these compliance initiatives. Are these employees or I should say FTEs here to stay? Are they hired for a period of, say, 12 months? Just give us a breakdown of how many people work on these initiatives? How many of them are internal employees? How many of them are external? And the external ones, when are they likely to leave? Who would just like to get a bit more of a grip on this escalation in the compliance band ideally? And the second question, hopefully, a quicker one. Any update on the CEO succession? Thank you. I will take the second one. Thank you very much, Stephen. No, there's no update on CEO succession process going well. When we can, of course, say something when the Advisory Board, of course, they will do that. With respect to the first question, Clifford, can you answer that one? Yes. Just I will give some color, but we also guided to Q4 where we'll give more detail. I think on provisions, you're right, it is external expenses. So particularly where we have remediation programs where we are upgrading our KYC files. We take on external staff to which we can ramp up quickly. And those are the bulk of the current sort of increases in FTE. And for those specific costs, we can book a provision for those. Those remediation programs also incur internal costs, and you'll see those come through the P and L later. I think in terms of FTE, over the last 6 to 12 months, a lot of the FTE increases have been around these remediation programs. I think going forward, we expect to see some change in mix of that. As those remediation programs get going, you'll see those numbers flatten off and eventually come down. And we will build up further our business as usual FTEs in relation to detecting financial crime. So those folks will be engaged in transaction monitoring and ongoing file reviews. And in the medium term, we see opportunity to automate and get efficient at these activities. So we'd expect to see costs and FTEs coming down, but that's a little bit far off. So that gives you a flavor for the ramp up and the ongoing developments. And obviously, we'll update you going forward. Clifford, just to follow-up on this. Do you have around 1500 people? I have something like that at the back of my mind from previous updates working on KYC more or less. Yes. Is that what it is? Okay. And of that amount around $200,000,000 to $250,000,000 would be external people right now? No, I won't give a breakdown on that. It gives you a I mean, it gives you it's just under 10% of total staff. So we're trying to give an indication of the resource commitment in this area. It's a mix. It's a mix of internal, but the externals are primarily engaged in remediation and that we use external or shorter term staff so we can ramp it up quickly and then in due course bring it down cost effectively when those programs have been completed. Okay. But the 1500 that includes internal people who have been moved from other roles to help with the KYC, permanent KYC plus external? Yes. And I think if you think about the ramp up of our costs, we've already got a significant commitment. It's in the numbers that were in the slide we talked about and is also in the €5,000,000,000 run rate. So when you think about DFC inflation, we've already absorbed quite a lot of it, although we do expect further inflation going forward, will be a balance by the cost saving programs I indicated. Okay. Thank you so much. Next question is from Mr. Robin Schadenbroek, Mediobanca. Go ahead please. Yes. Good morning, everybody. Thank you for taking my questions. The first one is on NII. If I take your underlying run rate for Q3 of €1,610,000,000 and I factoring the €20,000,000 sequential headwind from replicating portfolio and I had €60,000,000 for deposit during next year, I basically get to consensus for next year. And I was just wondering if you could talk a little bit about loan growth perspectives, better loan margin repricing and the prospects of negative deposit rates. I mean, presumably, those should still be positively driving NII next year. I know in the CIB, I think you're still aiming to go up the quality curve, so that probably leaves some NII on the table. But some comments around that would be quite helpful. The second comment is, I'm sorry to come back on this, but it's on capital. But the fact that your capital ratio on last year's payout ratio is at 18.8% should imply, in fact, that probably your payout ratio year on year should go up, assuming that you will adhere to the 17.5% to 18.5% target range, as you seem to indicate? Or is there any risk that you're going to frontload some of the headwinds you see coming in next year, amongst others, the more sizable mortgage density risk increase, which is imposed by the Dutch Central Bank? And then a small follow-up on capital. So your Basel IV position is still flat year to date, while also in Q3, you sold some assets. So why isn't that reflecting your Basel IV position? Thank you. I'll start with answering and Clifford, please add. I think portfolio wise, we're doing good as a bank, and we also expect that to continue next year. As said, mortgages were well placed. We're making good margins and portfolios grown in the Q3 by €800,000,000 So that's good. But the economy is performing well. So also on the back of that, we expect to continue SME to well to finance themselves also via bank of course. So that's good. We see growth in that portfolio as well. CIB has delivered a year earlier than expected on the €5,000,000,000 reduction risk weighted assets. So they did a great job there. As said, the 3rd quarter 9% ROE results. So that's actually very good. We're happy with that. And indeed, looking for better quality deals, more fee driven, originate to distribute opportunities and the likes. So from that side, we are positive about debt development. On the asset side development, we're positive about NII. Now with respect to the deposits, Clifford has mentioned the $20,000,000 sequential, and I talked about the $100,000,000,000 deposits not having negative rates. So that's the position over there. And then yes, you have to make your calculation there. With respect to capital, and I cannot guide you anything new. As said before, your figure is right, the 18.8 percent Basel IV is 13.5 percent indeed excluding profit, but including profit is close to 14 percent I think. Your asset question, why it's not further improved? Yes, I'll pick that up. I think we need to recognize these are quite modest movements. There are actually a couple of things, a bit technical. So, Basel III was a little stronger than Basel IV. And in respect to the disposals, actually the risk waiting for the sold assets was higher under Basel III than Basel IV, because under Basel IV we have the benefit of the output floor. So that benefit was lower in Basel IV. And we also shifted some of our sovereign exposures. And the Basel III regime is actually a bit more favorable risk weight for these assets in the target credit weightings than they are on Basel IV. So some very specific explanations, but you can see the regimes are slightly different, so the margin effects are a little bit different. But big picture, excluding accrued profit, our Basel III is pretty flat and our Basel IV is pretty flat. And I think that gives us confidence given the strength of the business and the more challenging market environment. And then maybe one follow-up on the NII question. Okay, so I appreciate what you said that you're positive on the asset side of the balance sheet. But if I would take similar rationale from the Q2 starting point of €1,640,000,000 your underlying seems to have dropped by more than €20,000,000 Is there any specifics on why that is the case? I think I highlighted the incidentals. I mean, you see our bridge on Page 8. So again, these are quite small movements. There's always a few things going on in the numbers, but we see underlying around 1.6, hence our guidance for Q4 and think cases run through the developments for next year. Okay, cheers. Thanks guys. Thank you. Next question is from Mr. Benoit Katarqui, Kepler Cheuvreux. Go ahead please. Yes, good morning. Questions on my side. So first one is on the money laundering part. So could you update us on the kind of main outcome from the review you have done of the DFC? I think you said in your presentation that you put recommendations in a new delivery plan submitted to the regulators. Could you give us the main kind of colors or highlights from this plan? Is there any serious issues reported to the regulators? Second one is on the other income. I think you still maintain your kind of €125,000,000 per quarter guidance. I think the underlying is much weaker than that. Why are you confident to maintain kind of the €125,000,000? Do you expect higher private equity gains next year? Or what makes you confident on this guidance? And the last one was just maybe on this negative rate opportunity. I don't think there's much banks putting a treasury all that 100 ks. So could you give us a bit more details, for example, putting a treasury all that at €1,000,000 instead of €100 ks? Much of your deposit will actually be in scope for a deposit cut? Thank you. Thank you. Thank you very much for your questions. I'll take the first and the last. Clifford, can you take the second? With respect to money laundering, I think it's best practice that you hire also in these cases an external party to also check if you have done everything well to best practices in the market. That's what we've done. We had a plan already sent to Central Bank and we have augmented that further after the well, the benchmarking we also got from the external party. So I think that is best practice used, yes, improvements from their sites, incorporated that in our plans and send that now to regulators. So that's there. With respect to negative rates, yes, I think there is we can further break down. I don't have the figure. But for instance, to give you one indication around, it's a bit over €30,000,000,000 for instance, You see some amounts in the market around €2,500,000 This actually is for us around a bit over $30,000,000,000 for instance to give you an indication which is above $2,500,000 for us. Okay. And just on other income, Benoit, I think if you look at the chart and I concur with your view that other income has been, call it, at the low end of the range or lower than our guidance in the last few quarters, but was actually materially higher prior to that. And so when we look at the volatile items, we can't see a structural change. But we know there's clearly volatility. And if we do see a structural change, we will update our guidance. So I think the nature of that bucket is you always get volatile items and just to exclude them all and look at underlying, I don't think it's the right way of doing it. I think look at it over time and then consider whether there's sort of structural changes to it, which we don't think they're the case. I think we've been disappointed on relatively few private equity gains this year. And we've got meaningful capital still committed and expect a return on that, which will come through the other income line going forward. So could you update us thank you for the answers. Could you update us on the size of the portfolio on the for the private equity portfolio? Yes. It's around €600,000,000 €600,000,000 Okay. Thanks. Yes. Thank you. Next question is from Mr. Albert Pluch, ING Bank. Go ahead please. Yes, good morning. Thank you for taking my questions as well. The first one, you had to come back to the negative rates. Yes, so basically today, 20% of the deposit base already is subject to negative pricing. So can you maybe help us a little bit how much that is in terms of NII on an annualized basis? And what kind of levels is currently being charged? Because also to understand, as mentioned earlier, 40% of the base is of the positive base is not yet subject to negative pricing but could potentially. But current clients already have negative rates and apparently they have accepted this. So to also understand a bit what kind of headroom you have on the existing deposit base that is subject to negative pricing? So that's the first question. The second one is on the capital and I'm sorry to come back a little bit to previous question on the RWA outlook also for Q4 and also the dividend. I know there are a lot of known unknowns in that respect on RWA headwinds, but are there already some you think you already know that will come in Q4? Or do you very much expecting to get some feeling on what the RWAs may end up for the full year at least because Q2, Q3 obviously wasn't actually in that respect and positive price? Thank you. Yes. I'll tackle those 2 and Tanja, please help if I'm ease my way. I think on negative rates, the bulk of that is in CIB that we charge currently. And so I would just look at the CIB segment disclosure. Effectively, we're passing on the market rate in those areas. Right. So we're not making material margins on CIB deposits, but neither are we losing money because those are not part of our the 2 buckets of 40% that Kees talked about. And with the and he gave you the some guidance around pricing in that context. I think on RWAs, I talked about inflation. We see that very largely in 2020, all those regulatory headwinds. I mean, it's possible some of that lands before Q4. So TRIM, it's possible, but we think more likely next year. And so clearly, as you'd expect, I think one of the earlier calls is the dividend is not a mechanical calculation. So if we don't get the inflation in Q4, but we expect it in Q1, we're not going to ignore that in our judgment around dividends. So that capital target is the zone in which we would consider additional distributions, not a mechanical framework. Yes. Maybe to come back on the follow-up on that because I know your dividend policy in a way is formulated quite mechanical, and we all know the environment that banks operate in. So but in a way, I mean, you've been paying €1.45 for the last 2 years. Consensus was always way above those levels. And in the meantime, if you can come below for 2019 and also for 2020 on the $145,000,000 So how important is it for ABN AMRO in to have at least a stable dividend? Or is it not sacred, so to speak? We don't guide on that right now, Albert, sorry for that. But that is a Q4 decision. Nice try. Next question. The next question is from Mr. Tarek Elmajat from L. Go ahead please. Hi, good morning. Just one question actually on the costs to come back to that. So the in the Slide 10, you effectively mentioned that yesterday the annualized run rate is around €5,000,000,000 but that's excluding the remediation provisions. And so how are you confident to accelerate the EUR 5,000,000,000 despite actually mentioning that this remediation and DFC cost and compliance will continue to ramp up. I understand that there is still some cost savings to come around €150,000,000 but this were already in your initial €5,000,000,000 guidance. So I'm just trying to really understand here the different moving parts. And maybe just quickly on the dividend, to follow-up on the previous questions. Do you have in mind progressivity of dividend or just sustainability in a sense that you still want to be able to pay a decent dividend over time? Thank you. I'll take the second one. We don't have the progressive dividend, as you know, And the guidance is, as mentioned before, that Q4, we will look at the target range and all our well, expectations around that at that moment in time. With respect to cost, Geppet? Yes. I think, look, we haven't reconfirmed the €5,000,000,000 for next year. We're sort of careful in how we say our words. I think we are you're right. When we indicate the run rate of $5,000,000,000 that does exclude the remediation provisions, that $200,000,000 or so. However, that does include the $5,000,000,000 the current $5,000,000,000 does include the step up in detecting financial crime costs in business as usual to date. So I would say I'm pleased that we've managed to absorb that meaningful inflation and still be today at around $5,000,000,000 and still have $150,000,000,000 of cost savings. So that gives you a feel for our buffer or headroom in our ability to absorb further technical financial crime costs going forward of the business as usual nature. As Kees said, look, we'll make the necessary investments. We think ensuring that we're fully compliant is money well spent, and we'll spend the money to do that. But we're doing that cost efficiently, but we need to make the necessary investments. Outside that, the business is very focused on continuing our track record of consistent cost discipline, which you've seen quarter on quarter over the last few years, and that will continue. Okay. I mean, because just I mean sorry, I didn't get really the full answer to be fair. I know you tried, but so are you so you're not confirming the guidance. You're trying you do your best to achieve it. But at this stage, given the compliance costs and so on, it's still difficult to get to the €5,000,000,000 I mean also I mean no, I mean I'm not sure What we're saying is that we are currently at around $5,000,000,000 There are cost headwinds, which we flagged, but there also cost further cost savings. And so precisely where that balance lands, we're not calling today, But given the quantums, you can form your own view. Okay. And in terms of these extra investments, in your previous answer in the call, you mentioned that some of them might decrease over time. Fair enough, you said it's not soon, but later. I mean, the experience shows that other banks that were involved in money laundering in the past, this becomes quite sticky and structural costs. And probably you need a new savings program to offset these and absorb these. So if I understand, this is not something you contemplate at the moment to put in place saving programs to offset these costs? We are thinking about it, but I think it's early days in terms of how we communicate externally. And I think the key message is that we expect the ramp up to continue. I do think big picture, I think the business as usual costs on AML will be higher in the future than the past. I don't think that should become as any surprise to you even after the benefits of automation. And these costs are meaningful at margin of our cost base. But in terms of our overall spend, I mean, it's still relatively small proportion. But it's clear that we and the banking sector as a whole will need to put material resource commitments to this going forward even if we can automate a lot of these activities. Okay. Thank you very much. Next question is from Mr. Bodoores, Degroof Petercam. Go ahead please. Yes. Hello. Sorry to come back on the dividend policy. You are now already on target and if you include profits above target regarding your Basel 4 ratio. Your Basel 3 ratio range was set so high because of the Basel 4 impact and the regulatory pressures you expect in 20 20 are only having an effect on the Basel 3 impact. So I was wondering when you decide about the dividend, will you also look at what the Basel 4 ratio is at that time? Or are you simply keeping a look at the Basel 3 ratio, including what you foresee as regulatory pressures? You have already any idea on a quantified impact of those pressures by the way? And then my second question is, well, relating to NII, how much do you plan or have you decided already to put in TLTRO? And also, there was a speech yesterday by Benoit Couray saying that even also Dutch banks are starting to lend money to Italian banks in order to offset further their cash surplus. Are you participating in that? Thank you. We will at year end also look at Basel IV, so not only Basel III. We will look at both. Any indication of other regulatory pressures? I don't think so. No. So on the other elements, I think we don't have current plans to take advantage of new TLTROs given our funding alternatives. And our exposure to Italy generally is pretty modest. And it has not increased in the last month, let's say? No, I have not, no. Okay. Thank you. Next question is from Sean Pierre Lambert at KBW. Go ahead please. Hello, good morning. Thank you for taking my questions. Two questions, please. The first one is regarding the risk of a fine. As you are in discussions with the authorities, at what point would you consider prudent to take provisions for such a fine to build up a buffer if you want? The second question is regarding to the cost. I'm sorry to come back to the €5,000,000,000 cost base. So you have about €133,000,000 already included if you annualize, and that's the green part of the stack in page or Slide 5. But then if you do some calculations with cost inflation and the savings you're indicating EUR 150,000,000 potentially. So then you could afford about EUR 207,000,000. So the total you could afford to have flat cost base, if you want, or the EUR 5,000,000,000 would be for DFC around €320,000,000 let's say. So what are the chances of your costs of DFC going above the level of sorry, 2.40? What are the chances of the cost base for DFC next year to be above $340,000,000 Thank you. Thanks Jean Pierre. Clifford, you said the second one. First one, I think we can only take that into account when we have a clear indication about a mine. We cannot do that just randomly. Yes. IFRS tests would apply. So I think on the I think your calculation sounded pretty good to me in terms of measuring the bar and thinking through the ability to absorb further inflation on DFCs, that sounded pretty good. I'm not going to give a likelihood on above or below. I think that if you work through that approach, which I thought was good, the delta is pretty small in relation to $5,000,000,000 right? So it should give you a feel for the balances involved. And we're not calling above or below, but order magnitude, it feels like you've got the right approach to me. Thank you. But then I can see you're mentioning that you have a plan, a new delivery plan. So you must have some idea of the potential cost in 2020. Yes. So we do. I think, as you'd expect, we're very much on top of these matters. I think the caution in giving we're not giving a specific forecast for the total cost base. So we're not going to give specific forecast for individual items. I think where our caution is in some parts of the plan, things will go well and sometimes in some areas, things may go less well and we'll adopt the plans to reflect that. And so we recognize this is an area of focus and we'll be happy to update on Q4 and we'll have more to talk about at that point. Great. Thank you very much for your help. Next question is from Mr. Kiri Sijayarajah, HSBC. Go ahead please. Yes, good morning everyone. First question on the Dutch mortgage volumes and you usually get a year end spike in repayments. I just wondered, do you expect that to be a bit more severe this year because you've increased the incentive for people to run down the deposits and then simultaneously pay down their mortgages. So in other words, simultaneously pay down their mortgages. So in other words, does the push into negative rates further encourage household deleveraging, particularly if kind of the other big banks in the Netherlands sort of follow your push today? And then secondly, just a follow-up on the your guidance for model updates and increase in the 4Q cost of risk. Is that was that it's primarily just IFRS 9 Stage 1 and Stage 2 provisions we're talking about? Or is there something else going on that we should expect in 4Q? Thank you. Thank you very much. Tanja, if you take the second, I'll take the first. Indeed, Q4 is always a quarter where people because the first of Jan is a taxable moment, people look into opportunities to pay back some extra mortgages. We don't expect it actually to be more severe. Of course, it's new. What we've decided today communicated today. So we don't know. Of course, it's the Q1. We'll see. We have no expectations yet that, that will be clearly more severe. But it will be always portfolio will go down in the Q4 that we have seen in the last couple of years. Yes. Thank you for your question. On the model updates, indeed, we are reviewing the IFRS nine models, actually all models, Stage 1, 2 and 3. And it will mean some changes in the model provisions in all these three stages. Okay. Okay. Got it. Thanks. Next question is from Ms. Alicia Chatton, Exane. Your line please. Good morning everyone. A couple of questions from me. First of all, you highlighted to us not so long ago that the definition of default would be one of the headwinds for ABN in terms of capital. Is this something that you can now come back to us and give us some sense of the quantification of that headwind, at least a kind of a ballpark view? Also, can you give us an update on how we should be thinking about the risk weighting of NHG mortgages under Basel IV, which may or may not be another 90 bps headwind? And then secondly, on provisions, your coverage ratio now stands at 28% on a group level and the coverage ratio on corporate loans has been falling every quarter now for the last 4 quarters, while Stage 3 loans have been picking up. Can you explain what is driving this? And also given the ongoing challenges in CIB and the very low coverage ratio there, how should we think about the provision outlook for next year? Is it fair to expect it to move within your through the cycle range now? Thanks. Thanks, Alicia. Can you answer them, Tanja? Yes. So on your question with respect to definition of default, well, I think not a lot we can say at this stage. Yet we are in the midst of implementing this into our systems and are looking at the impact, but also on as regulatory feedback. And we expect that well to come well either this quarter or in Q1. So hopefully, we can update you more on that in the next update, in the next quarter. On the I think NSG, yes, there have been no developments there. So we continue to include it in our Basel IV guidance as we did before. And with respect to the coverage ratio on our Stage 3 Gerhard, you've seen that indeed over the past year coming down somewhat. Last quarter, that had to do with the fact that we changed our well definition of default and unlikely to pay figures for mortgages. And that led to an increase in Stage 3 loans and a drop in coverage ratio given the low coverage of these assets. This quarter, we had some inflow from CIB assets that are well covered by collateral and therefore have a low coverage ratio as well. So that's there are the reasons. Yes, towards next year, I think you mentioned that already the or the economy is doing okay. We expect a 1% GDP growth in the Netherlands. So you need to consider that in our outlook. You can expect that our provisions will move somewhat towards the average cost of risk that we guide. Okay. Thank you. Very clear. And just sorry to clarify on the NHG mortgages, you said that, that is within your Basel IV guidance. So in your Basel IV guidance, what risk weighting do you give to NHG mortgages? No. So it's a 0% weighting. Yes. Sorry? 0% weighting. Okay, fine. Thanks. Ladies and gentlemen, if there are any additional questions, please Mr. Van den Broek, your line is open. Go ahead please. Sorry to come back on the queue. Just one question on the remediation provisioning. I was just wondering what's driving forward looking guidance potentially here. Is it simply the temporary FTEs, the external FTEs and the speed of their file handling that could make you provision more or less going forward? What are the drivers there? And secondly, the IT investments, I think you've been hinting that they can come down. That's not part of the €150,000,000 remaining cost save program, if I understand correctly. Is that correct? Yes. So I'll pick up both. So on you're right. On the remediation provision, we make a series of assumptions about number of files that we need to remediate, how long it takes and the cost of doing that. So a key driver is the velocity and quality of our file reviews. So that's I would highlight that as a key factor. And what you see typically is when you start, it takes a while for these files to be reviewed to quality. But as you get going, you get the machine working, quality improves, velocity improves. So there's sort of more uncertainty at the beginning. That's generally how these things work. I think in terms of IT Investments, I think you're right that we had a series of cost programs. We had the original cost program that was announced in 2016. We had further cost savings identified in respect of the corporate bank, and that's around €1,000,000,000 And then we set out yet further cost savings in respect of IT and moving towards the sweet spot in IT. But that was always expected to take place over a period of years, but we're expecting some of that into next year. So we feel good about our cost saving programs alongside the necessary buildup in the financial crime resources. Okay. That's clear. And then just one silly follow-up, but the fact that we're moving into Christmas doesn't affect the speed of file handling for the remediation provisioning in Q1? We plan for Christmas. Okay. That's great. Cheers. Thank you. Thank you. Any other questions? There's a question from Mr. Bojio Araiza, Petercam. Go ahead please. Yes. Hi. Sorry, also two follow-up questions. You state that the fees in Private Banking were up thanks to the acquisition. Could you give us some underlying flavor what fees were doing without the acquisition? And then you also took a very small provision for SME derivatives. Could you confirm that, that is now completely behind us, that that is now completely finished? Yes. I think the on private banking fees, we saw the benefit also this quarter recovered equity markets. So our fees in the private bank reflect all sorts of things, but in particular, the quarter start valuation levels. And so we're pleased to see that equity markets have moved up this year, and that's also supported fees coming through the private bank. So there is some underlying growth also there? Yes. Yes. And there's structural changes, developments going on the industry year on year, but quarter on quarter, we're seeing we were pleased with the developments in NIA was positive in that business. So that was one reason for my confidence around fees earlier. The second question just As a mid derivative. Yes. Is it R? It's on. I think so. Yes. Okay. Thank you very much. There are no more questions. Please continue. Okay. And I would like to thank you all for your questions. This concludes then our Q3 results update. And thank you very much. Goodbye. Ladies and gentlemen, this concludes the ABN AMRO Q3 2019 Analyst and Investors Conference Call. You may now disconnect your lines and have a very nice day.