DBRS Says ABN AMRO Bank N.V.’s AA Ratings Unaffected by the Sale of U.S. Mortgage Business
DBRS said today that its AA long-term rating and R-1 (high) short-term rating of ABN AMRO Bank N.V. (ABN AMRO) and their Stable trend remain unaffected by the bank’s announcement earlier today of the sale to Citigroup of its U.S.-based residential mortgage broker origination platform and servicing business. DBRS considers that this divestiture is consistent with ABN AMRO’s increased focus on the more profitable retail and mid-market segments in the United States, where it enjoys key competitive advantages. In addition, the sale, which will translate in a small net book gain and in the transfer of around USD9 billion in net assets, of which approximately USD3 billion of mortgage servicing rights associated with a USD224 billion mortgage servicing portfolio, will not substantially affect ABN AMRO’s business and earnings profile.
In particular, although the U.S. mortgage business achieved strong returns in the early 2000s, the slower U.S. property market has been weighing on its profit contribution (USD297 million for the first nine months of 2006, or 8% of the Business Unit North America operating income), making its medium-term profitability prospects less attractive. In addition, the sale of the mortgage servicing rights eliminates some of the earnings volatility associated with the amortization and the interest rate hedging of this intangible asset in ABN AMRO’s balance sheet.
DBRS notes that, with USD217 billion of assets, ABN AMRO’s Business Unit North America remains one of the leading foreign institutions operating in the United States, with a significant presence in the Midwest through its subsidiary, LaSalle Bank, which will continue to distribute consumer mortgage and home equity loans profile as core products distributed through its extensive retail branch network in Illinois, Indiana and Michigan.
DBRS concludes that ABN AMRO’s ratings, assigned in September 2006, could take advantage, over the longer term, of its sharper strategic focus on long-term profitability underpinned by recent business realignments, divestitures and progress in the bank’s cost management, and of measurable success in the implementation of the new strategy and business organization in terms of increased penetration, cross sale and turnover in key markets.
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