DBRS Comments on ABN AMRO’s 1H10 Results: Sr. Debt Ratings Unchanged; Downgrades Hybrids to A (low)

DBRS has today commented that its Issuer & Long-Term Debt Rating of “A” with a Stable trend for ABN AMRO Group N.V. (ABN AMRO or the Group) is unchanged following the release of 1H10 results. DBRS’s Long-Term Debt & Deposits Rating of A (high) with a Stable trend for ABN AMRO Bank N.V. (the Bank) and the R-1 (middle) Short-Term instrument ratings for both the Bank and the Group are also unchanged. At the same time, DBRS has today downgraded the ratings of two ABN AMRO Bank N.V. hybrid instruments. As part of its review of banks that received State Aid during the crisis, the European Commission (EC) has required that ABN AMRO defer coupons on those Hybrid Tier 1 and Tier 2 instruments where it is contractually permitted to do so. As a result, and consistent with DBRS methodology, these instruments, which have deferrable, cumulative coupon payments, have been downgraded by one notch to A (low).

The Group reported a loss for 1H10, which was within DBRS’s expectations due to previously announced costs related to the EC Remedy sale and the merger with Fortis Bank (Nederland) N.V. Together these charges amounted to EUR 1.3 billion (net) and drove the reported EUR 968 million loss. Importantly, underlying profit for 1H10 was EUR 325 million, up from EUR 207 million in 1H09. On an underlying basis, DBRS sees the Group’s results as mostly positive, reflecting the resilience of the franchise as well as an improved operating environment in the Netherlands.

Retail & Private Banking (R&PB) results were strong, up 139% on an underlying basis to EUR 596 million for 1H10. The Group reported good growth in SME loans and a small increase in mortgages as well as further growth in savings deposits. At 30 June 2010, assets under management were EUR 152 billion, up more than EUR 13 billion from a year ago. Revenues benefited from the higher balances as well as better deposit margins as net interest income increased 19% to EUR 1.7 billion. Fee revenues were EUR 649 million. Segment impairments declined 48% from 1H09 to EUR 141 million.

In Commercial & Merchant Banking (C&MB), results were down relative to 1H09 due largely to legal provisions taken in 1H10. Group-wide, the legal provision was EUR 265 million in the period. Overall, C&MB was modestly profitable, earning EUR 2 million for 1H10. Positively, operating income increased 7% to EUR 1.3 billion and impairments fell 44% to EUR 231 million as customers benefited from increased global trade and the recovering Dutch economy.

The Group also meaningfully enhanced its liquidity profile in the first half of the year and continues to make progress on improving its funding profile. Cash and equivalents were up EUR 18.1 billion from year end to EUR 22.5 billion as ABN AMRO built a significant liquidity buffer, totaling EUR 55 billion at 30 June 2010. With respect to funding, the Group’s results evidenced further progress in extending the maturity and diversifying its sources of funding. ABN AMRO issued EUR 4.9 billion of unsecured bonds in the period ranging in maturity from 0.5 to 7 years. The Group also placed EUR 7 billion of RMBS and issued EUR 1.5 billion of Covered Bonds. Notably, the Group has been able to replace Government-guaranteed commercial paper (CP) with unguaranteed CP and launched a EUR 5 billion U.S. CP program in 1H10. Issuance under this program began in July.

Capital levels, including a Basel II Tier 1 ratio of 12.3%, remained adequate, in DBRS’s view. DBRS notes that the Group comfortably passed the stress test conducted by the Committee of European Banking Supervisors. In the adverse scenario, including the additional sovereign shock, ABN AMRO’s Tier 1 ratio was 9.9% at year-end 2011.


Note:
All figures are in EUR unless otherwise noted.

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

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