ABN AMRO Bank N.V. (ABN) Earnings Call Transcript

Welcome to ABN AMRO's Q2 2026 Analyst and Investor Call. Please note, this call is being recorded. [Operator Instructions] I will now hand the call over to the speakers. Please go ahead.

Good morning, and welcome to ABN AMRO's Q2 '26 Results Presentation. I'm joined today by our CFO, Ferdinand. Vaandrager; and our CRO, Serena Fioravanti. I will cover the key messages or progress on strategy and our financial results for the quarter. After the presentation, as usual, we will open the line for your questions. But first, let me begin with the key second quarter highlights on Slide 2. ABN AMRO delivered another strong quarter, supported by continued client activity and high fees. Net profit increased almost 30% year-on-year to EUR 781 million with return on equity improving to 12.1%. We saw continued business momentum with growth in lending and deposits. Commercial net interest income increased strongly, and we have raised our full year '26 guidance to around EUR 6.8 billion, now including an IBC Fees increased further, reflecting strong growth of EUR 25 billion in client assets and another quarter of good clearing results. Progress on cost reductions is ahead of schedule and we have lowered our full year '26 cost of guidance to around EUR 5.5 also including NIBC. Credit quality remains solid with another quarter of limited impairments, our pro forma CET1 ratio strengthened to 15.9%, supported by growth in capital light businesses. We set our interim dividend at EUR 0.68 per share based on 40% of our year-to-date net profit. These Q2 results reflect our progress on the strategic priorities of delivering profitable growth, rightsizing our cost base and optimizing capital allocation. Let me now address each of these strategic priorities in turn. We are pleased to have completed the NIBC acquisition. It strengthens our position in attractive client segments and add capabilities that fit well with our strategy. Including an IBC we have realized around 3/4 of our deposit growth ambition and around 80% of our mortgage growth submission. In July, we announced a partnership between Worldline and ICS. This partnership will strengthen our credit card offering, enhance customer experience and accelerate innovation. There are sourcing concerns up to 450 FTEs and will deliver further efficiency gains. Turning to Wealth Management. Client assets grew by more than 7% this quarter, reflecting strong market performance and commercial defaults that generated EUR 2.3 billion of core net new assets. We are gaining traction in our priority segments. Females, nexgen clients and dual client business owners. Inflows optical higher in the second half of the year. So we remain on track to deliver between EUR 5 billion to EUR 7 billion of net new assets annually. Following the legal merger of Hal in June, our focus now shifts to the technical IT integration in Q4 and the delivery of synergies. Corporate Banking is also on the right track with increased cross-sell and another strong quarter for cleared. We also continued to grow in sectors linked to European transition things, including defense. Now turning to our progress on the cost base. We continue to simplify our organization and improve efficiency. In the second quarter, FDA declined by around 250, mainly internal FTEs. While the pace of reduction has moderated, the cumulative FDA reductions are ahead of schedule at 45% of our 28 targets. Over the past 1.5 years, we realized around EUR 300 million of our EUR 900 million savings target for '28. The savings mainly reflect our ongoing organizational transformation and the streamlining of our IT landscape with a growing contribution from automation and AI initiatives. We now have around 50 use cases in production, including our Gen AI power plant voice bot and a Gen Knowledge Assistant for KYC and AML analysts. As we scale, tokenonomics helps us manage AI taken use across these applications, balancing consumption with quality, risk and business value. This enables us to select the right model for each use case. Recently, we also announced our partnership with Ms. access to European AI models is important because it gives us greater choice in selecting the right model for each use case. Now turning to capital optimization. Since our Capital Market Day, we have realized EUR 9 billion of RWA optimizations in total, including around EUR 2 billion this quarter. Corporate Banking has contributed EUR 6 billion to these reductions and achieved more than 60% of its strategic RWA reduction ambition. Looking ahead, we expect a number of significant RWA developments in the second half of the year. On the one hand, consolidating NIBC will add around EUR 6.6 billion next quarter. This is expected to reduce our CET1 ratio by around 70 to 75 basis points. On the other hand, in Q4, the termination of the DNB mortgage floor is expected to reduce RWAs by around EUR 7 billion. The slide does not show several smaller items that will also affect RWAs. The annual update to the EBA property loss rate will reduce RWAs by around EUR 1.5 billion in Q3. The sale of our personal loan business, AFAM, will reduce RWAs by a further EUR 1 billion in Q4. RWA increases are expected from business growth and potentially some other updates. These are harder to quantify today. We will conduct our capital assessment in Q4 or first under our distribution policy of up to 100% of net profits. Now turning to the financial performance for the second quarter. starting with the Dutch economy on Slide 7. Dutch GDP grew by a healthy 0.4% and in the second quarter, better than expected and positive for this year's outlook. At the same time, inflation remained elevated with further upside risk to energy prices from the conflict in the Middle East. The CD deposit rate is expected to reach 2.5% by year-end following a rate hike in September. The Dutch housing market has cooled somewhat following years of significant price increases, but prices are still expected to rise by 3% this year and 4% next year. Transaction volumes are expected to decline by 3% in 26 and 4% in 2017. However, the persistent shortage of supply continues to put a floor under the housing market. Other macroeconomic indicators also remain robust, particularly unemployment and bankruptcies, which remain low. Overall, resilient domestic demand the healthy housing market and gradually rising interest rates provide a sportive operating environment for the bank. Now turning to client assets and deposits. Total client assets grew by just over EUR 25 billion in Q2, mainly reflecting strong market performance in Wealth Management. Personal and Business Banking also delivered a strong quarter a growth of more than 4.5%. The shift from cash and time deposits towards advisory and discretionary products continued. Client deposits increased over EUR 5 billion. growth reflected both seasonal holiday all once payments and progress towards our strategic conditions. And next quarter and IBC will add to these numbers. Now turning to commercial net interest income. Commercial NII increased 5% compared to the previous quarter. The main drivers for this increase were higher liability margins, strong clearing results and higher liability volumes. To put some numbers around this, our liability margin improved by 5 basis points, driven by higher yields on our replicating portfolio. Average liability volume increased by EUR 4 billion reflecting both our strategic focus on deposit growth as well as seasonal effects. Finally, other commercial NII was mainly due to increased financing demand from existing clearing clients and an expanding client base as we deliver on our clearing growth ambitions. Moving to assets. The margin there declined by 2 basis points, reflecting the high share of government backed capital-light mortgages in new production. This capital-light mortgages are profitable, so this reflects only the difference in margin. Mortgage volume increased by EUR 1.7 billion this quarter with a market share of 18%. The market is currently very competitive, and we remain disciplined rather than seeking to maintain market share at all costs. Now moving to our guidance for the full year. At the time of our Q1 results, geopolitical developments have pushed interest rates higher, but it wasn't clear whether those levels would persist. So it was too early to change our NII guidance. Today, forward rates remained broadly at these levels, and we have just reported a strong interest results for Q2. We are, therefore, now in a position to raise our full year commercial NII guidance to around EUR 6.8 billion, including an IBC. As on chart shows, the interest rate environment continues to be a tailwind to a liability margin. For this year, we now assume other commercial NII of around EUR 0.6 billion. This reflects higher clearing NII. And from August 1, we will book NIB's NII in this line item. Following further integration, and IBC's mortgages and deposits will be booked in asset and liability NII. Now turning to fee and other income. Fee income increased 2% quarter-on-quarter and reached a record level. Positive market performance lifted wealth management fees during Q2. Corporate Banking growth as well. Clearing continued its strong Q1 performance and cross-sell led to several large corporate finance deals this quarter. PNPB fees were broadly stable quarter-on-quarter. Other income improved strongly to EUR 106 million. This was mainly due to favorable ALM results from economic hedges. Together, record high fees and improved other income contributed to 6% quarter-on-quarter increase in operating income. Now turning to costs. Our priority is to deliver on our strategic targets, which require disciplined cost management. I am pleased with the progress we have made so far. -- our efficiency is improving with positive developments in areas such as lower IT costs. These developments are reflected in our full year '26 cost guidance. Our headline cost guidance remains EUR 5.5 billion. However, this figure now includes an IBC Second half will -- second half of the year cost will depend on the outcome of the collective labor agreement negotiations, which will resume in September. We are not updating our cost target for 2028. The remaining savings will be more spread over time and the full cost reductions from synergies and outsourcing will only be achieved beyond 28. We also need to invest in areas such as data centers AI, cyber resilience and commercial initiatives. Sandi said, a good start has created some headroom, but it is too early to change the target that we presented less than a year ago. Turning to credit quality. Credit quality remains solid with a cost of risk of 4 basis points and a stable stage 3 ratio at 2.1%. We -- for stage 3 coverage ratio declined, and it is now around 14% despite strong provisioning discipline. The decline relates to the derisking of our corporate loan book, the runoff and write-off of highly provisioned files and the greater share of mortgages in the total portfolio. A recent back test of our coverage ratio shows that it remained consistently above historical write-offs even during downturns. Impairments were low at EUR 24 million despite ongoing macroeconomic uncertainty. They were largely attributable to a small number of individual files across various sectors. Following the renewed escalation in the Middle East, we maintained a higher weighting of our negative macroeconomic scenario for Q2. Overall, our credit quality remains solid reflecting the strength of our loan book, prudent risk management and strong collateral across all our portfolios. Turning to our capital position. Our pro forma CET1 ratio increased to 15.9%. This improvement was driven by the quarterly profit, minus the 50% dividend reserve and broadly stable risk-weighted assets. Our reported CET1 ratio, which deducts all profit in line with regulatory requirements, remained stable at 15.3%. Turning to the key RWA developments. Within credit risk, business growth was largely offset by further RWA and portfolio optimization, lower market and operational risk contributed further to the decline in our RWAs. Our strong capital position enables continued investment in profitable growth while maintaining a robust capital buffer. Let me close with the key takeaways from the quarter. Today's results demonstrate disciplined execution against our strategic commitments. We advanced on our priorities of profitable growth, cost base rightsizing and capital optimization. Strong momentum continued across our core products and client segments. We completed the IBC acquisition and now includes its NII and cost in our full year guidance. We raised our full year commercial NII guidance to around EUR 6.8 billion and effectively lowered our cost guidance to around EUR 5.5 billion, both now, including in IBC. Our 15.9% pro forma CET1 ratio provides capacity to invest in our strategy and pursue profitable growth. Year-to-date, with the bank tax spread evenly across the year, our pro forma return on equity was 10.9% and our cost-to-income ratio was 56%. We are, therefore, confident without being complacent that we can achieve our financial targets. This concludes my presentation, and we will now take your questions.

[Operator Instructions] The next question comes from Giulia Aurora Miotto from Morgan Stanley.

And so my first question, Marguerite, the quarter was great. But of course, we're going to focus on capital 1.9% and with some tailwind also coming by year-end. Can you give us an update on the distribution? Because you're well ahead the 13.75%, even if we take 15.3%, assuming 100% distribution that is still well ahead of the 13.75% targets. So I guess the market expects some excess capital distribution. And why second part to the question, why do we need to wait until full year results. A lot of banks do interim excess capital distribution decision. So why wouldn't ABN be able to do that.

We are committed to returning at least EUR 7.5 billion of capital and paying out up to 100% of net profit over EUR 26 million to EUR 28 million. As we already shared, we will do our annual capital assessment with Q4, and we do not want to speculate ahead of that. We are pleased today with the strong capital position we have and the progress we made on our strategic delivery. But we should also realize that we are still early in our strategic period, only 2 full quarters year-to-date, a 3-year plan. So I've also mentioned in our CMD and also share that Q1. If over a period of time, our capital position remains significantly above our target and if we're delivering on our strategic ambitions, we may consider additional distributions.

Understood. And sorry, a follow-up on the target. Since you are very close or ahead on some of the targets. When would be a good time to give an update on -- beyond 2026? Would it be a year from the CMD, so perhaps Q3?

As I said, we're very pleased with the progress we're making so far. And this is why we've been able to already update and upgrade or commercial NII, but also our cost target for '26. But we are still early in the plan. So for the moment, we are not changing our 28 targets but our mission doesn't stop there, and it doesn't stop in '28.

The next question comes from Namita Samtani from Barclays.

The first one is just on the corporate banking loans in the Corporate Banking division, which were EUR 59.7 billion in the first half of '26 versus EUR 56.5 billion in 2025. It's on Page 9 of the report. So that growth is 11%. I was just wondering, do you think that's a sustainable level to grow and the right thing to do given it's a lower ROE business than Personal Banking, for example? And secondly, just relating to that, could you tell me or give an impression of what the margin is like on the corporate loans? And can you give an idea on front book versus back book? And is it, for example, a lower margin than the mortgages?

Thank you very much. So as we shared at our CMD, I think the key marching order for CB is profitability. So we're pursuing profitable growth for CB. And you've seen the RWA capital optimization, but you also see it in our disciplined client selection framework. So the loans we originate, and we're also happy with the commercial momentum aim at pursuing profitable growth. This is really the name of the game for CB. And this is what you see in the increased volumes out we shared at Q2 of EUR 2.7 billion. This being said, we also see because this is a competitive market, margin pressure on the asset side. A lot of the pressure is the outcome, as I mentioned in my presentation, of NHG backed mortgages in our business mix. So this is also what you see in the slightly lower margins that we shared in our investor presentation slides.

The next question comes from Benjamin Goy from Deutsche Bank.

Yes. One follow-up and your -- about a mix of the commercial NII going forward because your asset NII is remarkably stable despite the loan growth you just mentioned. So should we expect something similar and then the pickup in the second half to come viability NII in particular? And then secondly, your -- similar question on capital level. So very strong, even with 100% payout, it seems to be difficult to get close to your target. So just wondering now you have done 2 acquisitions both seem to be going well and a bit ahead of time, whether you still have appetite for more deals also potentially looking at more cross-border initiatives?

I hope I heard you well because the line was a little bit time, but that's okay. Ferdi will answer your question on NII. If I understood correctly, your second question was whether we are considering M&A, given our strong capital position. I hope I understood that correctly. So right now, we are very happy -- thank you. We're very happy with the 2 acquisitions that we've recently made. How in Germany that boost or wealth management franchise in this country, which is typically a second market. and IBC, where we only did a closing on August 1. So right now, we are very much focused on making these acquisitions a success and making them successful by fully also integrating them in our group. This is really what we focus on. We also shared at the time of our CMD that when it comes to M&A, we have a very strong discipline. We would only consider target that we would fit in our strategy. We would only consider acquisitions that would be accretive for shareholders. and we would only consider acquisitions where we think execution risk is manageable. So this is really a very disciplined M&A policy approach. Maybe, Ferdi, you want to comment on commercial NII development?

Yes. Benjamin, maybe underlying coming out of the presentation as well, the drivers of commercial NII were both on the liability side and other commercial asset NII indeed stable. But underlying, you see healthy growth in mortgages and corporate loans. So why is it stable is specifically the offset in lending margins they were down quarter-over-quarter by 2 basis points. As mentioned already by Marguerite, the biggest driver of this is the lower RWA density of our mortage portfolio that has even amplified under Basel IV for the state guaranteed mortgages. And you might also see going forward that part of the benefit of the market for removal will also be partly pass through. The second effect is the lower LTVs. It's now around 54%. So also there, you have the risk premium reduction and you should also keep in mind that Alfam will be sold in Q4 consumer loans, but averages higher lending margins. So overall, the outlook is good, specifically for corporate loans is more or less stable, but also the portfolio, specifically the lower density is the main driver of lower asset margins.

The next question comes from Shrey Srivastava from Citi.

One short term and one longer term, please. The short-term 1 is we've seen system volume growth in the Netherlands, even excluding this holiday balance set of 6% to 7% versus you guiding to 3% to 4% underlying. So are you sort of willing to not compete on price and see some market share because quite frankly, you can afford to produce? And my second question is you've now made acquisitions in German Wealth Management. You've made acquisitions in Dutch retail. When you look at the size and the shape of your business, particularly in wealth management, what are the key areas you can see to grow above market? Is it market share gains in Germany? Is it potentially inorganic and for example, Belgium and France or any other areas that you see?

Thank you. I will take your question on M&A and Wealth Management, and Ferdi will comment on volume growth later on. On M&A right now with the acquisition of Hall and Batman that we already had in Germany, we have a very strong position of #3 in the wealth management market in Germany. And so our goal is to thrive. Our goal is to extract the synergies that will derive from these acquisitions. This is why following the legal merger that we achieved for how mid-June, we are now fully focused on the IT technical integration that will happen at Q4. Right now, as I said, our energy is focused on making our recent acquisitions, be it Hall or NIBC to be profitable. We do believe, and that's what we shared at our CMD and that the ambition we have of achieving overall EUR 335 billion of client assets by '28 will be achieved beyond the acquisitions that we have already announced through organic growth. And so this is why we focus very much on commercial momentum and productivity with our clients. This is about leveraging our own franchise, which is very strong. On the volumes?

Yes. Maybe on the liability side, indeed, it's very strong. If you look at client funding, it was underlying if you correct for the short-term custody inflow in Q1, it was plus EUR 5.3 billion. So on an annualized basis, you see an underlying growth of 11%. Yes, indeed, part of it is seasonal. You normally see the holiday allowances in personal and business banking. And last year, you always see increased spending over the summer period, but also part of it might be more structural because savings tend to increase when uncertainty increases have, for example, due to the geopolitical developments. But also what you see here, while the market deposit market in the Netherlands grew first half of the year with 6% to 7%, our market share slightly increased -- so also here, we have a market share between 14% and 15%, so even a slight increase on a very healthy growth market in the Netherlands, and that's the main underlying driver of our healthy deposit growth.

And if I may, just a very quick follow-up. The system is growing 6% to 7%. You're gaining market share. Is it time to relook at a 3% to 4% underlying assumption?

Maybe it's too early to start looking at that. As Mark Read said already, we're comfortable with the target we set for 2020. And also here, as I said before, let's also look how much is structural or not. And it's always depending with increasing rates and increasing margins, what the hair competition elements will do. So for now, we're very comfortable with the targets we set during the CMD.

The next question comes from Anke Reingen from RBC.

The first is just on other commercial NII is running above your previous guidance. Is there -- is this just more volatile clearing result? Or is there any structural reason that we can extrapolate from the '26 guidance ex the NIBC impact to the next years? And just on liability margins, the 119 basis points. Do you think that's sustainable? Or is there anything in the competitive dynamic in the Netherlands, I think wobble rates some of the rates that would could potentially put some pressure on it. And then sorry, secondly, on cost, the guidance, you put the comment out it's subject to the CLA agreement. Can you just confirm that there isn't a risk we don't expect the rest your cost guidance depending on the outcome from the CLA?

Thank you very much. I will take your question on cost. And Ferdi will answer on other commercial NII, but also liability margins. Yes, we refer to our collective labor agreement because, as you know, we started the negotiations in June and they will resume mid-September. In the assumption we shared at CMD, we said that in our financial plan, we have taken an hypothesis for inflation of 2%. And I believe we also gave the guidance -- I mean, the information at Q1 that 1 percentage point above that would amount to between EUR 30 million and EUR 30 million full year. So I think you have from that, the necessary ingredients. We also shared at the time of all CMD that anything that would go beyond the equities we have taken our financial plan would also be compensated by additional savings.

Yes. And other commercial NII, the quarter was very good, plus 30%. And the biggest drive for here is higher financing needs from our clearing clients. If you look at our overall guidance, EUR 350 million to EUR 400 million we provided was also based on a clearing NII if you look at full year 25 million of just above EUR 300 million. So it's elevated levels there. Also in here are the interest-related fees. So those are the underwriting fees, which are amortized. And as said by Marguerite, for the coming quarter or maybe quarters, we have added NBC to our overall guidance on other commercial NII that adds up to slightly below the EUR 150 million. So underlying in the guidance you would see around EUR 450 million what we expect for other commercial NII for the year. Then if you look at the liability margin, yes, 5 basis points increase. So that really reflects disciplined deposit pricing and you start to see the prolonged tailwind of our replicated portfolio, which started already the end of last year. So going forward, we expect to benefit from the structure of the replicating portfolio as the higher-yielding swaps will be rolled in more gradually. But always, you are dependent on competition, potentially impacting volumes and also potential migration shift. So for now, we're comfortable. We expect the liability margin trajectory to continue as we earlier guided on during our CMD.

The next question comes from Matthew Clark from Mediobanca. .

Just a couple of follow-up questions on the other commercial NII and the liability margin, please. So on the other commercial NII that is implicit, I think, in your new guidance that it drops back down to the former run rate. So if you could just confirm that? And then also, would you -- or should we expect the same to happen to the strong clearing related fees that you talk about this quarter? And then secondly, on the liability margin trajectory, the chart on Slide 10, I'm struggling to and it looks -- when I compare that to the same chart last quarter, it looks like there's around about a 10 basis point uplift to the April curve scenario. So I'm just a bit unclear why the trajectory has improved for that, if we look at that static April curve scenario between last quarter's outlook in this quarter's outlook.

Okay. Ferdi, on other commercial NII.

Yes, on other commercial NII, will it move back. We said other commercial NII of the guidance we provided at CMD EUR 350 million to EUR 400 million. As I said, clearing is elevated levels. So that is the biggest explanation why we expect it to be around EUR 450 million for the full year. If you look at the underlying guidance of EUR 600 million. So that is the underlying explanation. If you then look at the chart what will happen on Slide 10 to the liability margin. Indeed, looking forward on the current forward rates, we expect -- for example, in 2028, the liability margin, roughly 10 basis points higher than the chart we presented during the CMD. But you should take into account that rates are volatile and potential impact of migration or mix shift once the margin increases further. So overall, the underlying assumption, as we said before, on the replicating portfolio, we expect a full pass-through on interest paid deposits, and we expect a full benefit from the current accounts, which is around EUR 50 million. So that is the explanation why on current forward curves, 2028, the expected on a these assumption liability margin will be roughly 10 basis points higher compared to CMD in November last year.