Dutch state eyes €6 billion ABN Amro IPO
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Dutch state eyes €6 billion ABN Amro IPO

IPO likely for up to 40% stake; sale set for 2015.

Gerrit Zalm-envelope
Gerrit Zalm, chairman of ABN Amro’s managing board

The Dutch government is likely to sell up to 40% of its stake in ABN Amro through an initial public offering next year, helping it recoup a fraction of the close to €30 billion it has spent rescuing the bank.

Analysts value ABN Amro as high as €15 billion, so a 40% stake could mean an IPO of up to €6 billion – making it one of Europe’s largest for several years.

The Dutch government, which owns all ordinary shares in ABN Amro Group through not-for-profit organization NL Financial Investments, said last August that an IPO was the most “realistic option” to reprivatize the bank, originally scheduled to happen this year.

The IPO is likely to be launched in the first half of next year, probably in the second quarter, after the European Central Bank’s asset quality review and the bank’s 2014 full year results. The exact timing will, as ever, depend on market conditions and investor demand.

The European IPO market boomed in the second quarter – with about €23 billion of equity capital raised from 113 IPOs, the best quarter since 2006 – but concerns are emerging that investor appetite is waning.

A number of IPOs, including for UK retailer Fat Face and Hungarian airline Wizz Air, have been pulled in recent weeks, suggesting the new issue market might be beginning to overheat, if it hasn’t already.

A year from now

Market sentiment could be very different a year from now, but investors should take some comfort from the fact that the Dutch government will keep the bulk of ABN shares after any IPO.

The UK government did much the same last September when UK Financial Investments, the body that manages the government’s stakes in Lloyds Banking Group and Royal Bank of Scotland, sold only 6% of the shares it holds in Lloyds. UKFI still holds 25% of Lloyds’ shares.

Chris_Wheeler65 small
Investors want to feel the seller still has
skin in the game after the IPO

Christopher Wheeler

“Investors want to feel the seller still has skin in the game after the IPO,” says Christopher Wheeler, banks analyst at Mediobanca in London.

A 40% stake is understood to be the upper end of expectations of the first tranche of ABN Amro shares, with 30% the lower end, according to a senior source with knowledge of the bank’s privatization.

Domestic peer ING Group most recently sold 28.6% of NN Group, its insurance and investment management business, through an IPO in July, marking one of the final steps in its restructuring.

ING has said that it intends to reduce its shareholding in NN Group to below 50% before the end of 2015 and divest the remaining stake before the end of 2016.

The Dutch government has paid nearly €40 billion in total to rescue the country’s financial sector since 2008, including capital injections for ING, Aegon, and nationalizing SNS Reaal and ABN Amro.

The rescue of ABN Amro and its related entities cost €16.8 billion initially, with subsequent support lifting the cost to €27.9 billion, according to the Dutch ministry of finance.

Preferred option

While an IPO of ABN Amro is seen as the preferred option for the Dutch government and the bank itself, there were undoubtedly few buyers willing to buy a domestic bank of its size in a country that is in recession.

Lack of economic growth has affected ABN Amro’s results in the past few years, but the Dutch economy is improving, supporting the bank’s financial performance and its plans for a 2015 stock market return.

In the first quarter of the year, ABN Amro said its cost-to-income ratio had improved to 58% from 65% in 2013, while its return on equity rose to 10.9% from 5.5%, compared with a year earlier. Chief financial officer Kees van Dijkhuizen has said that these two measures are important in supporting the bank’s privatization.

ABN Amro aims to have a cost-to-income ratio of between 56% and 60% and a return on equity of between 9% and 12% by 2017.

The bank reported a 30% rise in first quarter underlying net profit to €378 million as higher margins on deposits led to increased interest income, while expenses barely rose.

Loan impairments remained elevated – reflecting the weak state of the domestic economy – at €361 million, up 39% on the same period a year before. However, Gerrit Zalm, chairman of ABN Amro’s managing board, says that the economy is showing signs of improvement.

“The number of residential housing transactions and average house prices have increased since mid-2013. Even though GDP showed negative growth in the first quarter, heavily impacted by lower energy production, other indicators have made a turn for the better. It will take time for loan impairments to return to more normal levels, however, as these lag economic developments.”

He adds: “All in all, the first quarter was a good start to the year, but we caution not to extrapolate this result as Q1 is traditionally the best quarter of the year and also because the bank tax is due in Q4.”

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