May 14, 2018 / 5:40 AM / 8 days ago

UPDATE 2-ABN Amro shares fall as large impairments drag down first-quarter profit

* ABN Amro Q1 net profit falls 3 pct

* ABN Amro says large impairments on loans to oil-related companies were disappointing

* ABN Amro expects level of impairments to drop during 2018 (Recasts on drop in share price, disappointment on loan impairments)

By Bart H. Meijer

AMSTERDAM, May 14 (Reuters) - Shares in ABN Amro fell almost 5 percent on Monday after larger than expected loan impairments hit the Dutch bank’s first-quarter profits.

The lender reported a 3 percent drop in net profit to 595 million euros ($713 million) for January-March and 208 million euros of impairments as shipping, oil services, jewellery and some other sectors continued to struggle despite the Dutch economy’s strong recovery and rising oil prices.

“The level of loan impairments was disappointing in the first quarter,” Chief Executive Kees van Dijkhuizen told reporters. “But we expect them to remain below average in the whole of 2018.”

ABN Amro, which had to be bailed out by the Dutch state at the height of the financial crisis in 2008, said almost half of the write-downs were on loans to the shipping and offshore services industries, where many companies were still struggling in the wake of the slump in the oil industry in the past few years.

“These companies are very sensitive to the investment plans of oil majors,” Chief Financial Officer Clifford Abrahams said. “Although the oil price is rising, they need a more sustained recovery.”

Impairments also rose in the diamonds and jewellery business and amongst healthcare clients. Circumstances in all these sectors will remain challenging, but impairments for bad loans are likely to drop throughout the year, Van Dijkhuizen said.

Despite the impairments, first-quarter net profit was higher then expected, as analysts in a Reuters poll had predicted a profit of 574 million euros.

ABN Amro shares, however, dropped 4.7 percent to 25.08 euros, and have now fallen 6.3 percent this year.

They were at the bottom of the blue chip AEX index in Amsterdam, which was flat.

“Impairments cast a shadow over an otherwise sound first quarter”, ING analyst Albert Ploegh said in a report. “They were much higher than expected - counterintuitive given the strong Dutch economy.”

ABN’s cost of risk, measured by impairments in relation to the total loan book, more than tripled to 32 basis points in the first three months of the year, versus a long term average of 25 to 30.

ON TRACK FOR TARGETS

ABN Amro was still on track to meet its 2018 capital requirement and 2020 cost savings targets, Van Dijkhuizen said.

Ongoing cost savings reduced the ratio of costs to income to 57.9 percent in the first quarter, compared to 60.2 percent a year earlier, putting it in line with the 56 to 58 percent target set for 2020.

The bank’s core capital adequacy ratio fell slightly to 17.5 percent in the first quarter, which is the bottom of the range targeted for this year.

ABN Amro in February said it would maintain relatively high capital buffers, as new banking regulations look likely to ultimately shave 4 to 5 percentage points off its capital requirement ratios in the coming years.

The new regulations, dubbed Basel IV, put a much larger risk weight on mortgage loans. This specifically hurts ABN and other Dutch banks as they typically have a large mortgage loan book.

$1 = 0.8363 euros Reporting by Bart Meijer; Editing by Stephen Coates and Susan Fenton

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