DBRS Re-instates Rtgs on ABN AMRO Now AA (low)p, R-1 (mid)p

p = based on public information only.

DBRS has resumed its coverage of ABN AMRO Holding N.V. (“ABN AMRO” or the “Company”). The Corporate Short-Term Rating is now rated R-1 (middle)p and the Corporate Long-Term Rating is now rated AA (low)p, both with Stable trends and based on public information only.

In the context of Europe’s rapidly evolving financial sector, ABN AMRO is doing the right thing by sharpening its strategic focus on fewer specific markets, addressing its relatively high cost ratios, and increasing its capital ratios. Over the past few years, the Company has effectively been restructuring and positioning itself for more profitable growth in the future.

The driving force has been its Managing for Value initiative which aims to direct capital to those areas with better profit potential. As a result, it has exited a number of retail and wholesale banking markets, citing the inability to achieve the critical scale required to be successful in these markets. The Company recently finalized the sale of its leasing operations (LeasePlan Corporation), its U.S. Professional Broker operations, its European custody operations, and the sale of its Trust and Management businesses, which were deemed to be non-core operations. At the same time the Company has invested additional capital in the areas of Private Banking and Asset Management, the Brazilian market, the Italian banking market, and high growth markets in India and greater China.

One key challenge is to reduce cost ratios in the core Netherlands operations, which is to be addressed in the next year with staff cuts and moving additional central services offshore, though revenue growth will continue to be difficult. Another challenge is to maintain growth in the U.S. market in the absence of a buoyant mortgage origination business. While better focus and cost controls should enhance profitability, earnings volatility remains a concern given its financial market exposure in the Wholesale division, exposure to the U.S. mortgage market, and increasing loan exposure to developing markets. However, to date, good risk management controls have kept loan loss provisions as a percentage of loans below those of its peers.

Gains on the sale of certain non-core operations have helped increase capital ratios to target levels, with future gains being used to fund share repurchases.

Dominion Bond Rating Service (DBRS) will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, please contact us at: info@dbrs.com.

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