ABN AMRO is quitting trade and commodity finance activities and will wind down corporate banking in the United States, Asia, Australia and Brazil under a plan to shrink its investment bank. About 800 jobs will go.
The Dutch bank said on Wednesday the focus of its slimmed-down corporate and institutional banking (CIB) will be on clients in Northwestern Europe and clearing.
It is setting up a non-core unit for CIB, which will include about €14bn of risk-weighted assets, or 35% of CIB's total. The non-core arm will have about €18bn in client loans, or 45% of CIB.
It said about 800 employees are currently dedicated to non-core activities and the wind-down of the businesses is expected to take three to four years and be capital accretive.
"We have concluded that to be successful, CIB’s activities need more focus and scale," said CEO Robert Swaak. "Furthermore, CIB will need to reduce risk to adhere to a moderate risk profile and will align to the bank’s overall strategy and financial and non-financial ambitions."
ABN said in natural resources and transportation and logistics it will focus on European clients only.
Its only non-European corporate banking activities will be clearing, where the bank said it had taken several de-risking measures in recent months after incurring a large loss.
Stricter lending criteria and credit limits have been set based on clients' individual credit rating, available collateral and geography of origin.
ABN has already cut its markets activities in recent years, including equities, rates, credit, currencies, equity capital markets and debt capital markets. The markets business largely serves clients in private banking, commercial banking, CIB and treasury.
Several other European banks are reported to be rethinking their trade and commodity finance operations, including Natixis and BNP Paribas, after losses in energy trading.
ABN said about 80% of the CIB non-core portfolio will mature by 2023 through natural run-off. It said it will consider options to accelerate the wind-down.
Its loan impairment allowance for the non-core portfolio is €1.4bn and it expects additional impairments. It also expects to book a provision of about €200m for staff-related costs.
ABN has made several attempts to increase profitability and reduce risks in CIB after losses in the energy sector, but it said the attempts had been insufficient.
Swaak said the core Amsterdam-based CIB business will target markets where it has scale and can be sufficiently profitable and try to build on its profitable domestic franchise and footprint with links with the Netherlands.
That is likely to focus on mid-sized clients in sectors such as financial institutions, shipping, technology, media and telecoms, and real estate, and on products including lending, payments and asset-based finance, as well as the markets products.
It is sticking with clearing because it has strong roots in the Netherlands, offers diversification of income and is countercyclical, the bank said.
ABN said it wants the core CIB business to produce a return on equity of 10% in the long term. The core business' pro forma RoE was 9% in 2019 but was negative 12% in the first half of this year.
CIB made an operating loss of €894m in the first half - including a €209m loss for what will remain as core CIB - after an impairment charge of €1.4bn. In 2019, CIB made a profit of €291m - including €280m in the core business - on revenues of €1.9bn.
CIB's impairments dragged ABN to an overall net loss of €5m for the second quarter.
ABN was bailed out by the Dutch government in 2008 and was reprivatised in a 2015 initial public offering. The Dutch state still owns a 56% stake.
Its shares jumped 8% to €8.74 on Wednesday after the review and Q2 results.