ABN AMRO due diligence report.

Oto Suvari
Sep 12 · 4 min read

Hatchworks has conducted due diligence on ABN AMRO, the third-largest bank in the Netherlands, and added it to Hatchnet. ABN AMRO is listed on Euronext, a European stock exchange with registered office in Amsterdam and corporate headquarters at La Défense in Greater Paris, under the symbol ‘’ABN AMRO BANK N.V.’’

Financials — ABN AMRO
(source: Marketscreener.com)

ABN AMRO’s current market cap is €16.7B.

With a predicted net-income growth of 7% for 2020E and 2021E, and a net income estimate for 2020E in excess of €2B, this points to a P/E ratio of 8.41x.

The sales forecast is over €8.5B, indicating a P/S ratio of 1.97x.

In terms of profitability, an operating margin of 40.5% is predicted for 2020E. This compares to a 25% operating margin for competitor Credit Suisse (CSGN).

ABN AMRO has a relatively high expected yield of 8.24% for 2020E. Some competitors, like Credit Suisse(CSGN) has a low expected yield of 2.34%. We could state here that ABN AMRO is giving the highest yield for 2020E, compared with the competitors.

Looking at their latest Q2 2019 results we can see that:

  • Net profits were up 44% compared with Q1 2019, and ROE was also more profitable. EPS increased from €0.48 in Q1 to €0.71 in Q2.
  • Furthermore, the cost/income ratio (C/I) dropped a little in Q2 which is a net-positive, in our view. The C/I ratio is a key financial measure, particularly important in valuing banks. ABN AMRO’s C/I ratio is 56.4%, compared to an average of 60% with most other banks.
  • Net interest margin increased by 0.1% which are 10bps from 1.6% in Q1 to 1.7% in Q2.
  • Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of common stock held by a bank or other financial institution. It is a capital measure that acts as a precautionary means to protect the economy from a financial crisis. It is expected that all banks should meet the minimum required CET1 ratio of 4.5%; ABN AMRO’s is a strong 18%.
  • The leverage ratio is solid and stable at 4.2%.

Currently, banks pay the European Central Bank (ECB) to store their money as a result of negative interest rates, often considered as a last-ditch effort to boost economic growth. Banks can still make profits so long as their lending rates are above their borrowing costs. But while they have passed on negative rates to corporate depositors, they have not done so to households, as no bank wants to undermine its funding base. The result is lower bank profitability or higher lending rates.

Hatchworks, while appreciating the financial sector risk associated with an eventual recession, holds ABN owing to its superior yield characteristics and relatively benign valuation. Also, it is worth noting that the NLFI currently holds 56.3% in ABN AMRO on behalf of the Dutch state (of which 49.9% is directly held via ordinary shares), adding some security to the uncertain times that may lay ahead.

The Hatchscore is 5 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies


What is ABN AMRO?

ABN AMRO Bank N.V. provides various banking products and services in the Netherlands and internationally. It operates through Retail Banking, Commercial Banking, Private Banking, and Corporate & Institutional Banking segments.

Big Investors:

  • Price (T.Rowe) Overseas Stock Fund.
  • Lazard International Strategic Equity Port.
  • Vanguard International Stock Index-Total Intl Stock Indx.

Advisors and Bookrunners:

  • BofA Merril Lynch.
  • Barclays.
  • Citigroup.
  • ING.
  • JP Morgan.
  • Rabobank.

What are the risks?

  • If banks pass on negative interest rates to their regular retail clients, they could see significant withdrawals. As a result, market share could drop rapidly.
  • Due to economic uncertainty, investors may be more interested in safe haven assets like gold. Therefore, regular shares become less attractive which could also cause a drop in market share.

Top competitors:

  • Credit Suisse. (CSGN)
  • Barclays Bank. (BARC)
  • Royal Bank of Scotland. (RBS)

Management team:

  • Kees van Dijkhuizen: CEO.
  • Clifford Abrahams: CFO.
  • Christian Bornfeld: CTO.

The Hatchwork Team

The forecast figures are based on the data of MarketScreener and not from Hatchworks: https://www.marketscreener.com/ABN-AMRO-BANK-N-V-24962165/?type_recherche=rapide&mots=ABN%20AMRO


Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.

Oto Suvari

Written by

Research & Development at Hatchworks & Neuchatel Ltd. Heading up the group’s R&D activities for Hatchworks, SPECTRE (www.spectre.ai) and linked projects.

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