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

Welcome to ABN AMRO's Q3 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 Q3 '26 Results Presentation. I am joined today by our CFO, Ferdinand Vaandrager; and our CRO, Serena Fioravanti. I will cover the key messages of progress on strategy and our financial results for the quarter. After the presentation, as usual, we will open the line for your questions. Let me begin with the key third quarter highlights on Slide 2. ABN AMRO delivered another strong quarter, supported by solid commercial momentum, net impairment releases and further strategic progress. Net profit increased by 52% year-on-year to EUR 940 million, bringing the return on equity year-to-date to 12.5%. Business momentum was positive with both lending and deposit growth. Commercial net interest income increased by around 7% quarter-on-quarter, and we have raised our full year guidance to above EUR 6.9 billion. We continued to deliver on cost savings and our full year '26 guidance is unchanged at around EUR 5.5 billion. Credit quality remains sound model-related releases more than offset impairments on individual files, resulting in net releases of EUR 11 million. Our pro forma CET1 ratio was 15.3%, reflecting the acquisition of NIBC and continued capital generation. The progress on our strategic ambitions and the interest rate outlook provide a solid basis for updating our financial targets, which we will present together with our Q4 results. Let me now address each of our strategic priorities in turn. Starting with the growth ambitions for Personal & Business Banking. The inclusion of NIBC as of August 1 has strengthened our position in both mortgages and deposits. We also added 2 new savings products, which give clients more choice besides regular savings accounts and time deposits. Quarterly savings rewards clients who keep their balances until quarter end, while time lock savings offers a more attractive rate with 45 days notice for withdrawals. Wealth Management brought in more than EUR 2 billion of core net new assets this quarter and continues to focus on entrepreneurs, next-generation clients and female clients for its growth. The HAL IT integration is progressing well, while this quarter, we also completed the sale of HAL's real estate investment management portfolio. Corporate Banking showed further growth in focus sectors. To support Clearing's Asia Pacific growth ambitions, we opened a new branch in Hong Kong. We are meeting our client onboarding targets for clearing. And in addition, we added actually 2 exchanges to our membership list. Now turning to our progress on the cost base. We have completed 46% of the planned workforce reduction, keeping us on track for 2028. External FTEs have fallen substantially over the past year, while we continue to invest in IT and cybersecurity. The sale of Alfam and the legal merger of ABN AMRO Mortgage Group marked 2 key milestones in simplifying our organization. At the same time, we continue to simplify our IT landscape and are expanding the use of AI to improve operational efficiency. So far, we have delivered around EUR 350 million of our roughly EUR 900 million cost savings ambition for '28. Progress on cost saving and FTE reductions will not be linear, and we remain on track to deliver our '28 cost savings ambitions. Now turning to capital optimization. Since our Capital Markets Day, we have achieved almost EUR 10 billion of RWA reductions, of which more than EUR 7 billion was in Corporate Banking. This reflects the improvements we've made in our data quality and winding down activities that were structurally below our return hurdles. Corporate Banking share of capital is already around our '28 target of 50%, down from 58% at year-end '24. The removal of the Dutch mortgage floor is expected to reduce RWAs by around EUR 7 billion next quarter. This was not known at the time of our CMD, so this reduction is in addition to our original plans. Overall, we have made substantial progress on capital optimization and are well positioned against our '28 ambition. Before I discuss our financial performance for the third quarter, I will briefly update you on the Dutch economy. Dutch economic growth remains resilient, supported by domestic demand and stronger-than-expected first half of the year. GDP is expected to grow by 1.8% this year before moderating to 1.5% in '27. At the same time, inflation remains elevated at just above 3%, reflecting higher energy prices and broader price pressures. Interest rates have also moved higher, and the ECB deposit rate is expected to reach 3% in Q1 next year. The Dutch housing market remains supported by income growth and the persistent shortage of supply with house prices expected to rise by around 4% this year and 2.5% next year. Higher mortgage rates and affordability constraints are expected to reduce housing transactions, while unemployment and bankruptcies remain relatively low. Overall, resilient domestic demand and healthy household and corporate finances continue to provide a supportive operating environment, although inflation and geopolitical uncertainty remain elevated. I will now turn to client assets and deposits. NIBC added EUR 13.2 billion to our deposit base, split evenly between demand and time deposits. Excluding NIBC, deposits fell by EUR 2 billion, mainly due to seasonal spending and a shift into securities. Wealth Management clients moved around EUR 3 billion from current accounts and demand deposits into higher-yielding time deposits. Market movements had a modest positive effect on client assets this quarter. Core net new assets exceeded EUR 4 billion year-to-date, which keeps us on track for our annual growth ambition of EUR 5 billion to EUR 7 billion. Now turning to commercial net interest income. Commercial NII increased by EUR 110 million to around EUR 1.8 billion, up by 7% compared with the previous quarter. The main drivers were higher deposit margins and the inclusion of NIBC. Higher yields on our replicating portfolio supported deposit margins, leading to 8 basis points higher liability margins compared to Q2. Average deposit volumes were broadly stable quarter-on-quarter. On the asset side, mortgage volume growth is increasingly from capital-light state-guaranteed mortgages. This leads to a gradual decline in overall asset margins. NIBC made a good start, contributing EUR 63 million in net interest income since its consolidation on August 1, and this is reported with other commercial NII. Clearing's NII remained broadly in line with Q2, exceeding expectations. Higher liability margins and stronger-than-expected other commercial NII allow us to raise our full year commercial NII guidance to above EUR 6.9 billion. Let me now move to the NII sensitivity based on the current rate environment. At current forward rates, future reinvestments of our replicating portfolio will further improve its performance. How that improvement translates into higher NII depends on deposit integration, volume developments and how margins develop. Today, around EUR 50 billion of current account volume is managed using our replicating portfolio. Assuming this volume stays constant, current interest rates lead to an incremental benefit of around EUR 20 million for Q4. This rises to around EUR 250 million in '27 and EUR 350 million in '28 compared with projected full year '26. These are illustrative amounts. This is not a guidance. Lower rates or clients moving into interest-bearing products could reduce the benefit. When we discuss future NII developments, we generally assume constant margins on savings and time deposits. However, saving margins have improved over the past few quarters and are now above historical levels. A sustained change of 10 basis points in our saving margin, up or down, would change annual NII by around EUR 125 million. We intend to provide NII guidance for '27 with our Q4 results. Now turning to fee and other income. We are demonstrating structurally higher fee income levels. For the third quarter in a row, our fees ended above EUR 600 million. Personal and Business Banking benefited from higher payment and card service fees and higher asset management fees, while NIBC also added EUR 7 million. Wealth management fees were broadly stable when ignoring some nonrecurring M&A-related fees. Last quarter, corporate banking fees benefited from strong corporate finance deal activity, and this activity slowed down during the summer. Clearing fees remained strong, driven by volatile market, though slightly lower overall volatility as not all months sustained a high volatility level. We show other operating income here, excluding the EUR 85 million badwill from the NIBC acquisition. The increase to EUR 133 million in Q3 reflects higher equity participation results and better ALM results. Now turning to costs. Underlying operating expenses increased around EUR 65 million in Q3, of which EUR 30 million is due to NIBC. IT costs increased due to planned investment in a new data center and expanding our capacity in payments and cyber resilience. Lower average internal staffing this quarter helped contain personnel costs. Q4 will include the Dutch banking tax, and we expect some higher seasonal expenditures. The negotiations on a new collective labor agreement have not yet led to an agreement, so the impact is still uncertain. Nevertheless, we remain fully on track for our cost guidance of around EUR 5.5 billion this quarter, excluding incidentals and restructuring costs. We will start '27 with a higher cost run rate, reflecting IT investments and the full NIBC cost base. After the legal merger of NIBC, which is expected around the summer of next year, we can begin to realize the planned cost synergies. Now, turning to credit quality. Credit quality remains strong with a cost of risk of minus 2 basis points, bringing the year-to-date cost of risk to 3 basis points. Portfolio quality continues to be supported by our highly collateralized portfolio and also a robust Dutch economy. NIBC further contributed to this with a low-risk mortgage portfolio. This quarter, model-related releases on corporate loans more than offset impairments on individual files across several sectors. This resulted in net releases of EUR 11 million. Given continued geopolitical uncertainty, we have kept the weighting of our negative macroeconomic scenario at 55%. For full year '26, we expect the cost of risk to remain below our through-the-cycle range of 10 to 15 basis points. So overall, our credit quality remains strong, reflecting the strength of our loan book, prudent risk management and strong collateral across our portfolios. Turning now to our capital position. The NIBC acquisition reduced our CET1 ratio by 70 basis points at the low end of our guidance. Our regulatory CET1 ratio is now 14.5%. This figure excludes all profit contributions to capital equivalent to assuming a 100% payout of those profits. The pro forma ratio I mentioned earlier is 15.3%. NIBC added EUR 6.6 billion RWAs, bringing the total to EUR 143 billion. RWAs remained broadly stable when you exclude NIBC. Business growth was largely offset by lower RWAs from applying the updated EBA loss rate data for immovable property. As I indicated before, next quarter, the Dutch mortgage floor will be removed, reducing mortgage RWAs by around EUR 7 billion. The sale of Alfam will reduce RWAs by around EUR 1 billion. We will update you on our annual capital assessment with our Q4 results. Let me now close with the key takeaways for the quarter. Today's results demonstrate continued execution against our strategic commitments. We are delivering on our priorities of profitable growth, rightsizing our cost base and capital optimization. Good business momentum continued across our core products and all our client segments. We raised our full year '26 commercial NII guidance to above EUR 6.9 billion, and we are on track for our cost guidance of around EUR 5.5 billion. The good progress we made on our strategic ambitions and the improved interest rate outlook give us confidence in achieving our '28 targets. Therefore, we intend to update our financial targets and extend the horizon to 2029. We will provide the full details with our Q4 results. That concludes our Q3 results, and we will now open the line for your questions. Thank you.

[Operator Instructions] The next question comes from Tarik El Mejjad from BofA.

I have 2, please. First, on the costs. So you're pointing to higher costs from '27, including IT investments and NIBC integration. But if you look a bit big picture, you are a bank which is actually mostly Dutch mortgages, wealth management in Europe, with the corporate and the cost income guidance currently is 55%. I mean, consensus is much lower than that. But do you think the next plan will be actually a big focus on this? Because do you think you are a bank that should be having cost down in absolute terms in the medium term while now consensus and your kind of guidance suggest that costs will continue to go up, ex even incidentals? This is the first question. Second one is on the net interest income. Could you remind us the assumptions underneath your guidance for above EUR 6.9 billion and the way you look at your sensitivity in terms of pass-through, but also what do you expect in terms of deposit growth from here? I mean, Q3 was seasonally weaker ex NIBC. What do you see in Q4? And what do you assume in your outlook?

Thank you very much. I will take your question on costs and Ferdi will answer on NII. On cost, first, we can -- let me remind you that this year, we have improved twice our cost guidance. So if I may remind you, we started at EUR 5.6 billion. We lowered it to EUR 5.5 billion. And then at Q2, we said EUR 5.5 billion, including NIBC. And we are absolutely well on track to achieve this cost guidance. So you can be fully, I would say, certain of our cost discipline and our focus on this topic and on delivering all the cost synergies we have committed for the current plan. We are still early in the plan, if I may say, this is 1 year in a 3-year plan. So I'm not already working on the next plan. Nevertheless, do our ambitions stop with the current plan? Absolutely not. And as you can see, we are, I think, moving at pace in delivering on our ambitions.

Yes, Tarik, specifically on NII, we only have 1.5 months left in the year. So we're comfortable with the current underlying momentum with our upgraded guidance above EUR 6.9 billion, and that's really on the back of the tailwind of the replicating portfolio, as you see in the expansion we've seen in the liability margin. In general, but that's also in earlier quarters, we assume constant margins on interest-bearing deposits. What we try to do here on the sensitivity slide is providing some better insight in the split of liabilities and the potential tailwind on the current accounts. The only note I want to make here, as already said by Marguerite during her presentation, we are above historical margin on interest-bearing deposits. And also the forward rate we base this on, this was based on the end of October. And if you look at the forward rate today, the forward rate of today is lower. So yes, we try to extrapolate the effect specifically on the current accounts because that's normally a stable base. But overall, if you look at the outlook, you need to consider that currently on the interest-bearing deposits, we are above historical margins. And you've also seen some migration over this quarter into terming out. So overall, comfortable with the tailwind remaining of the replicating portfolio, but also some caution not to try extrapolating the current trend. Last question was deposit growth. Underlying deposit growth, sorry, Tarik, I'm just looking underlying deposit growth. We said at the CMD that is 3% to 4% underlying. So that would translate in our expectations of roughly EUR 10 billion per year.

And in terms of the higher NII coming from rates and you mentioned the Clearing NII. Could you give us a bit of the split there and how much Clearing NII has contributed to the upgrade?

Overall, we said if you currently look at clearing, Marguerite said during the presentation, it was slightly lower this quarter because there was 1 month with less volatility. But overall, we provided last quarter an indication of EUR 600 million for other commercial NII, but we expect in the guidance that clearing will remain around current levels.

The next question comes from Shrey Srivastava from Citi.

My first is again on this mix shift point that you noted. I would think in the Netherlands, given your lower proportion of noninterest-bearing balances in the first place, there'd be less scope for mix shift. But any sort of signs that you've seen on a more structural basis that mix shift could continue or anything you could point us to from previous cycles would be very interesting. And my second question is on the net new assets in Wealth Management. I mean your target of EUR 5 billion to EUR 7 billion when you translate into rate screens lower than both the rate of sort of wealth growth and financial asset growth in those -- in the regions you operate. And also below some of your private banking peers. So can you just elaborate on how much exits of existing relationships are included within that and what you think the scope is to outperform there?

Ferdi, I will let you take the NII question, and I will answer on Wealth Management.

Yes. To start on NII migration. As said, we introduced new savings products, time lock and quarterly savings. And also, we just announced, I think, earlier this week that we offer also short-term time deposits below 1 year. This is really being meant for the more price-sensitive clients also in Wealth Management to offer attractive rates as an alternative. Most of the migration, but we said that already, we have seen over the past 2 years. So if you look underlying here, the migration was still limited. Overall, for this quarter, it was roughly EUR 3 billion, but specifically from Wealth Management clients.

And on Wealth Management, we are fully in line with the developments we had shared at our CMD regarding the growth of this business. As you remember, for Wealth Management, our ambition is for '28 to have a total of EUR 335 billion of client assets. The underlying growth, indeed, if you take it on a yearly basis is EUR 5 billion to EUR 7 billion I referred to. As you also know, there is some seasonality in the Wealth Management business for us because usually the fourth quarter is the strongest one. The reason is that we are -- we have more than 35% of market shares in the Netherlands in Wealth Management. This is our primary market. And we are the house bank for our clients. So usually at Q1, they pay the taxes from their ABN AMRO account when they have several banks. So this is why you observe some seasonality. But all in all, we are comfortable with the commercial momentum we have in this business. It is true in the Netherlands. It is actually also true in Germany, where I feel commercial momentum has been very strong, even though our colleagues at HAL and Bethmann had to also grow through an IT merger. So I'm very happy that they remain very client focused while going into this integration.

And just a final one on the net interest income. On your main client savings rate, which is the main driver, when rates -- when ECB rates initially went down, am I correct in assuming you didn't pass on the vast majority of those rate cuts to your customers? So in terms of the competitive dynamic and the need to pass on higher rates, any further commentary would really be appreciated there, too.

Yes, we clearly do not comment on expectations of pass-through or our rate expectations here. Clearly, it was completely different when we went into negative rates where we even had a -- where we compensated clients with 0% up until 100,000. But so far, we've seen a disciplined market. But as I said earlier, we're happy where we are today, and we're offering competitive products for clients outside just the base savings accounts.

The next question comes from Delphine Lee from JPMorgan.

Just a few quick follow-ups. First of all, on net interest income. So for those new products that you have kind of proposed, I mean, offered to clients, so you're saying that the market has been quite disciplined. Is there, like, what drove your commercial push? Is that -- is it because you think that competition will sort of -- are you trying to anticipate competition here? Or just trying to kind of understand a little bit the dynamics. Is that intensifying as sort of the rates are going to continue to increase? Are you planning more of these products to achieve your targets in terms of sort of EUR 10 billion of deposit growth? And at what cost does that come to your NII? And then second question is just a quick one on Fees & Commissions. I think you mentioned in Q2 that there were some sort of nonrecurring fees, I think, in Wealth Management. I think -- so if you don't mind just quantifying what was maybe a little bit exceptional in your Q2 numbers? And then really last one on the cost side, just going back to Tarik's question. So are you flagging for '27 sort of start -- of course, because of full consolidation of NIBC, you're going to have a higher base. But is, I mean, considering your current target for '28, there is -- there should be and considering your progress as well on cost, there should be more scope for further improvement in absolute terms in terms for the cost base? Or is the intention to invest more because you also mentioned quite a bit the IT investment.

Thank you very much. I'll take your question on new projects and Ferdi will respond on fees and costs. We are an innovative bank. So part of what we do because that's in our DNA is to actually launch new products, and this is what we've done with these 2 new savings products launched this quarter because we feel that it offers to our clients a broader scope of solutions and optionality that caters to all their needs. We do that in savings, but I would say we do that in all parts of the game. For instance, if you look at what we've been doing with BUUT, which I'm very happy with the progress. We are the only bank in the Netherlands to offer such a solution for teenagers and their families. So innovating is just not a function of how we anticipate that the market will move, but also what we feel may be the best way to respond to our client needs. And this being said, we always considered the Dutch market to be on savings, as in all products, a market that is competitive and very transparent. Ferdi, on fees, the exceptional elements that we had in Q2.

Yes. Delphine, maybe we were not as explicit last quarter. But number one, what you always see over the summer quarter that you see lower capital markets, corporate finance transaction deals. So that is an impact quarter-on-quarter, you will see in the Corporate Bank. Marguerite said already, clearing is elevated, but slightly lower in Q3. And number three is there were some nonrecurring, but that is mainly related to M&A fees within Wealth Management. So there were a few elements in there. What I would really look at, if you look overall at fees, fees still shows 6% growth year-over-year, excluding M&A. So that is still quite a bit above our 3% to 4% that we provided at the CMD. And then on cost...

Yes, on cost. I'm sorry, go ahead. Yes, you had Ferdi on the cost question.

No, maybe specifically on the cost outlook, Marguerite was very firm. We stand with our cost target of EUR 5.5 billion. But what you will see for next year at the NIBC effect, it's not only the 7 additional months, but you're also going to see the integration costs. So overall, NIBC effect next year will be around EUR 150 million. And yes, IT investments, we expect them to remain in '27 at a higher level, really reflecting further investments in areas such as cybersecurity and data center. And then at the same time, you will also see the impact of inflationary pressures impacting existing contracts and as well as a potential impact from the CLA. But at the same time, we continue to deliver on our savings initiatives. So we're fully committed despite a higher inflation environment on the EUR 5.5 billion in 2028. But we also clearly want to flag you're going to see an increase in absolute cost in '27 versus '26.

The next question comes from Giulia Aurora Miotto from Morgan Stanley.

I have 2. So first, just to be clear on this cost discussion, could you clarify how much restructuring cost exactly you plan to take next year? And also, consensus has got cost basis of EUR 5.674 billion in 2027, which is already quite an increase in '26. So I think you are flagging that costs are going up next year, but I think this is already reflected. Or am I not understanding and your goal is probably to push that EUR 5.674 billion number higher? So that's on costs. And then secondly, on NII on Slide 10. So I hear a lot of caution in your remarks, but I think this slide is actually quite conservative because -- and I know the curve is now lower. I get that. But these columns are only on current accounts. There is no benefit here on the rest. And I hear you that probably the savings rate will go up. I get that. So -- but still, there will be some benefit on that part of the NII of your replicating portfolio as well. So yes, so I was just curious to confirm that I understand this correctly, i.e., that this, let's say, EUR 215 million is only limited to EUR 50 billion of current accounts, which is less than half of your replicating portfolio, in fact. So it's a partial disclosure of a bigger benefit, I guess, that you see.

Yes. Let's start, Giulia, on cost, yes, I see consensus indeed, what was shared referenced to the EUR 5.674 billion, as you mentioned, but that includes EUR 144 million in restructuring charges. So I read this as, but correct me if I'm wrong, excluding incidentals, consensus has EUR 5.5 billion. And as I just said, the elements of the full year inclusion of NIBC inflation, higher run rate in IT and then you can go on potential higher levies as well with NIBC that will have an impact. I just want to be clear, if you look at the restructuring charges overall, year-to-date, we booked EUR 110 million. We don't expect a lot residual for the rest of the year. And as we said at the CMD, it will be roughly EUR 100 million annually in restructuring charges. So we will stick to -- so we stick to that. Then if you go to NII, I get you in saying why are you just showing your current accounts? The reason that we're just showing the current accounts that we would just want to provide a better insight in what the tailwind is if this stays constant. The earlier liability margin potential we showed was really based on extrapolating the underlying margin trends. And as said, currently, we're quite a bit above historical margin. So if you are going to see price action in the market, it will have an impact on that. So it's just a reflection of the sensitivity of the current accounts and you should take into account that interest rates, migration, competition all will have effect on the rest of the part of the total NII. So in general, we just assume constant margins on interest-bearing deposits, but that assumption has become more optimistic. Now we're a quarter further than last quarter.

The next question comes from Benoit Petrarque from Kepler Cheuvreux.

So the first question is on the extension of the time horizon to '29. Will that be purely an update on the financial targets? Or can we expect also some update on the strategy? Strategy presented last year was a very good one, obviously, but you had more time to develop that strategy. So any strategic consideration we should expect? Also maybe looking at the commercial and the corporate bank development. Any update we should expect there? And then on -- sorry to come back on the -- a couple of questions on the NII. So first of all, it will be very useful if you could provide a bit more details on where you stand on the margin on savings accounts versus historical average, whether it's 10%, 20% higher, that would be very useful. And do you expect some normalization of savings account margin in '27? Is that your current base case? I know that on the slide, you show basically everything stable. But purely from a management standpoint, do you expect more normalization from current levels or further expansion? That's the question. And then maybe on Clearing NII because clearly, I think, Ferdi, you said that it's going to stay at current level also in the fourth quarter. But what about '27? I was trying to understand what the Clearing NII could do next year versus the current level.

Thank you, Benoit. I will start with a question on our time horizon and Ferdi will take the 2 other ones. So at Q4, we will indeed provide you with a financial update for 2029. This is not going to be a new CMD or full strategic update. Of course, everything we are presenting because we only commit on things that we can deliver, everything we will be presenting will be firmly grounded in business cases that we will have. So all our assumptions for '29 will be indeed firmly grounded in what we see, but this is not a full strategic update. Ferdi, on NII?

Yes. Benoit, for 2027, as Marguerite already said, we will make it transparent and provide absolute guidance at Q4. Specifically on where we currently are and how far above historic margins we are on savings margins, we don't disclose that. But we've also said, over time, we expect a gradual normalization. Does that mean an immediate normalization next year? That would not be my current assumption. Then if you look at Clearing, elevated level clearly this year on the back of higher volatility, but also underlying commercial momentum in clearing is a positive where we launch new products and where we onboard new clients, but we are always a bit more prudent and would expect some normalization next year in terms of volatility. So in being prudent for now, I would not extend the momentum we've seen in the past 2 quarters directly for full year in 2027. And we don't split. But as you know, we will provide a quarterly report -- annual report on Clearing mid next year. If you look last year over 2025, it was around EUR 315 million in NII, but this year is clearly higher than that number.

And the EUR 350 million still stands on a normalized basis or this is going to be a bit higher than that?

On a normalized basis, specifically for Clearing.