Dutch bank ABN Amro says it will slash the size of its corporate and investment banking business, according to the FT.
The news comes after a series of high-profile losses, excessive risk-taking in the division and the impact of COVID-19.
The state-backed bank on 12 August says it will wind down all of its non-European corporate banking operations. It will also stop providing trade and commodity finance. The decision follows a review led by Robert Swaak, the new chief executive.
A €703 million impairment charge is behind the bank’s losses.
“Over the years, CIB has been unable to generate the required profitability at an acceptable risk level,” the bank says.
ABN says it would shut non-core operations worth about 35% of the unit’s risk-weighted assets and 10% of the overall bank over the next three to four years, with about 800 jobs affected.
Clifford Abrahams, ABN chief financial officer, says the bank would consider selling assets to speed up the wind-down if market conditions improve, but adds that it was “not going to adopt a fire sale approach”.
Russell Quelch, financials specialist at Redburn, says the division has “long been an overhang on group profitability”, and investors welcome the plan to shrink it. Shares in ABN rose by 8% on 12 July.
The announcement marked the second restructuring of the division in as many years. However, while an earlier programme focused on shrinking assets the latest plan included a stronger focus on reducing risk.
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Martina Matouskova, analyst at Jefferies, says before the restructuring was announced that “ABN’s corporate finance division lacks scale, and we believe it compensated for this by taking bigger risks to deliver better margins”.
Large losses in the corporate and investment bank weighed on the group’s results for the second quarter, pushing it to a small net loss of €5 million compared with €693 million profit in the same period last year. Revenues fell 15% year-on-year, to €2 billion.
A €703 million impairment charge is behind the bank’s losses. This is partly linked to a weaker economic forecasts rather than current customer defaults. However, the bank says it was also affected by a number of large impairments in the oil and gas sector, and a potential fraud case in Germany.
ABN and its main Dutch rival ING were among the largest lenders to German payments group Wirecard, which collapsed in a fraud scandal in June.
ABN says it expects impairments to rise further in the second half of the year, increasing its full-year forecast from €2.5 billion to €3 billion. Tanja Cuppen, chief risk officer, says the bank expected to see a particular increase in problems among small and mid-sized business customers as government support schemes and payment holidays come to an end.
The second-quarter charges followed a number of even larger one-off losses in the first quarter because of the collapse of a US hedge fund and a fraud at Singaporean oil trader Hin Leong.
French bank BNP Paribas will also be scaling back its commodity trade finance business after a series of heavy losses.
