ABN Amro shares are falling due to weaker capital ratio

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ABN Amro shares fell 6% on Wednesday following its latest quarterly earnings release.

The company recorded a net profit of EUR 674 million, which consisted of net interest income, fee income and a low cost of risk. ABN Amro noted that its business momentum remains sturdy.

However, the shares fell when the CET1 ratio disappointed investors. This ratio is a key measure of a bank’s financial strength and stability, comparing core capital with risk-weighted assets. In the case of ABN Amro, it fell to 13.8%, compared to 15.0% a year earlier.

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Elsewhere, the company’s mortgage portfolio increased by EUR 0.8 billion and its corporate loan portfolio increased by EUR 0.3 billion, with continued sturdy net interest income as Amro continued to benefit from current interest rate conditions. Additionally, commission income was higher due to “good performance across all client units.”

“Our capital position remains strong, with a fully loaded Basel III CET1 ratio of 13.8% and Basel IV CET1 of approximately 14%. We remain focused on optimizing our capital position and are fully committed to generating and returning excess equity capital to shareholders combined with targeted growth,” said Robert Swaak, CEO of ABN Amro.

At the beginning of May, the company finalized the third share purchase program for EUR 500 million, announced in February.

Following the report, UBS analysts said ABN reported sturdy first-quarter earnings numbers. However, the decline in the CET1 rate is “an unexpected wind in the capital return story.”

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Meanwhile, RBC Capital analysts said “ABN’s reassuring operating trends in Q1FY24 were overshadowed by a lack of capital.

The B3 CET1 rate of 13.8% missed the consensus mark of 14.3% and the B4 CET1 rate of 14%, up from 15% in Q4 2023, “is now much closer to the 2026 target of 13.5%, which leaves less room for further capital distributions, but this may only be a time effect as ABN has previously indicated pros and cons in its capital path,” RBC analysts said.

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