State-owned Dutch lender ABN Amro warned yesterday that the weak domestic economy would lead to higher bad debts, underlining the challenge the government faces as it prepares for the bank’s eventual sale.
The Netherlands is expected to push ahead with an initial public offering (IPO) despite current valuations pitching its value at less than half the €30 billion the government poured into its 2008 rescue.
By comparison, Britain is expected to make a profit when it sells part of its 39 per cent stake in Lloyds Banking Group, possibly next month. However, its sale of Royal Bank of Scotland, whose disastrous €70 billion-plus acquisition of ABN in 2007 cost both British and Dutch governments dearly, looks a long way off.
Though the bank also reported that second-quarter profit had dipped by 3 per cent from the previous three months, analysts said that an IPO is unlikely to be derailed, provided that the economy starts to improve by next year.
“They will probably sell ABN Amro by the end of next year,” said Keijser Capital’s Nico van Geest, adding that the bank’s results show a positive trend.
He estimates ABN AMRO’s value at about €11 to €12 billion, and said that, assuming the state keeps a minority stake, the government could aim to raise €8 to €9 billion in an IPO.
Though well short of the €30 billion used to rescue ABN Amro, it would still be a welcome contribution to state finances at a time when the Netherlands must meet the European Union’s deficit target of 3 per cent of economic output.
The government is struggling to meet the EU target despite several rounds of austerity measures and billions of euros of budget cuts.
ABN Amro said that second-quarter net profit slipped three per cent to €402 million from the first three months as impairment charges on loans and other receivables increased by €292 million, reflecting the effects of the recession.
However, net interest income rose four per cent to €1.36 billion thanks to higher margins on loans, both for retail and commercial banking, while net fee and commission income was steady at €417 million.
While the economies of Germany and France grew faster than expected in the second quarter, pulling the eurozone out of recession, the Dutch economy has been hit hard by plunging house prices and a decline in consumer spending, leaving it mired in recession.
The government’s economic forecaster, CPB, said the economy is now expected to shrink 1.25 per cent this year, compared with a previous forecast of a 1 per cent contraction. Growth is seen at 0.75 per cent in 2014, against June’s 1 per cent forecast.