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Edited Transcript of ABNd.AS earnings conference call or presentation 13-Nov-19 10:00am GMT

Q3 2019 ABN Amro Bank NV Earnings Call

AMSTERDAM Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of ABN Amro Bank NV earnings conference call or presentation Wednesday, November 13, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Clifford J. Abrahams

ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO

* Kees C. van Dijkhuizen

ABN AMRO Bank N.V. - Chairman of Executive Board & CEO

* Tanja J. A. M. Cuppen

ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board

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Conference Call Participants

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* Adrian Cighi

RBC Capital Markets, Research Division - Analyst

* Albert Ploegh

ING Groep N.V., Research Division - Research Analyst

* Alicia Marianne Chung

Exane BNP Paribas, Research Division - Analyst on the Pan-European Banks Sector

* Bart Jooris

Banque Degroof Petercam S.A., Research Division - Analyst

* Benoit Petrarque

Kepler Cheuvreux, Research Division - Head of Benelux Equity Research

* Jean-Pierre Lambert

Keefe, Bruyette & Woods Limited, Research Division - SVP and United Kingdom Analyst

* Kirishanthan Vijayarajah

HSBC, Research Division - Analyst

* Pawel Dziedzic

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Robin van den Broek

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Stefan Rosenov Nedialkov

Citigroup Inc, Research Division - Director

* Tarik EI Mejjad

BofA Merrill Lynch, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for holding and welcome to the ABN AMRO Q3 2019 Analyst and Investors Conference Call. (Operator Instructions) I would like to hand over the conference to Mr. Kees Dijkhuizen. Go ahead, please.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [2]

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Thank you very much, operator. Good morning, everybody. Welcome to the investor and analyst call for ABN AMRO's Q3 results. I'm joined here by Clifford Abrahams, our CFO; and Tanja Cuppen, our CRO. I will take you through the key developments in the last quarter, including the investigation by the Dutch prosecutor. Clifford will go through the details of our third quarter results and run through capital. And Tanja will update you on the developments in our loan portfolio.

Turning to Slide 2. I will update you now on the third quarter. The last quarter for us was mixed. Operationally, the bank is doing well, delivering an ROE of 11%. I'm pleased with our robust financial results and solid operational delivery during the quarter.

Our interest income remains strong also on the back of the profitable growth of the mortgage book. Excluding divestments, net fee income increased this quarter. And excluding detecting financial crime or DFC-related costs, cost continued to trend down due to our strict cost discipline. Impairments continued to be moderate at 16 bps. We're making good progress on the CIB refocus as demonstrated by the ROE of 9% for this quarter.

We are well capitalized and well positioned to manage the transition through TRIM and Basel IV. Meanwhile, we also face challenges. As you are well aware, the bank is currently subject to an investigation relating to requirements under the Dutch Act on prevention of money laundering and financing of terrorism, more about that later. The major sector challenge is the continuing low interest rate environment and, hence, a strong focus on operational performance.

We continue to execute our strategy and purpose: banking for better for generation to come.

It's very proud, firstly, we have signed the United Nation's principles for responsible banking on behalf of ABN AMRO as one of the 130 funding banks. We believe that responsible relations with our clients, investors, employees and society as a whole gives us an advantage in building trust, supporting sustainable development and creating positive impact through banking. This year, we have once again been ranked amongst the world's most sustainable banks in the annual RobecoSAM assessment, achieving 79 out of 100 points, putting us in the top 10% of the most sustainable banks.

Let me now update you on some developments in the mortgage markets on Slide 3 as this is one of the drivers of our solid operational performance. I'm really pleased that in this third quarter, our market share and mortgages increased to 22% from 17% last quarter. We currently see good margins in the market, so we let our market share move up. Our strength in the mortgage market is supported by new products such as mortgage solution for seniors to cash out on home equity as well as the 30 years fixed-mortgage offer we do now as part of our mortgage originated-to-distribute platform. We also benefit from our strong operational capabilities. We have a speedy turnover -- turnaround time for new mortgage loan applications, and this is important for clients in the current housing market. Also, more than 2/3 of our mortgage meetings are done via video banking, enabling a fast, flexible and personal service. As the Dutch economy is expected to grow by around 1% next year, overall, the outlook for the mortgage book remains positive.

To update you on the interest rate environment and our actions, I take you to Slide 4. As I said before, NII was strong this quarter, despite the challenging interest rate environment. Our asset margins have remained resilient as we are focused on margins over volume. We also remained focused on asset quality in this part of the cycle.

Even so, we continued to expect further pressure on NII going forward around EUR 20 million sequential quarterly impact into 2020 through lower deposit margins.

As you are aware, we already charge negative rates to CIB clients and the largest clients in commercial and private banking. And we have followed a step-by-step approach. We have decided that we will not charge negative rates on deposits below EUR 100,000 K. This commitment -- EUR 100,000, sorry. This commitment means around 95% of our clients will be safeguarded from negative rates, representing approximately 40% of our deposit base. In addition, around 40% of the deposits are above EUR 100,000 threshold and are currently not subject to negative rates.

Of course, we also focused on developments -- on developing more fee propositions as well as opportunities to increase fees where we can, for example, in Commercial Banking, the cybersecurity and bookkeeping propositions. In Retail Banking, great focus on investments and insurance, and in CIB, our increasing focus on originate-to-distribute.

Let me update you on the investigation of the Dutch prosecutor and our DFC activities on Slide 5. In September, we were informed by the Dutch public prosecutor that we are subject of an investigation relating to requirements under that Dutch Act on the prevention of money laundering and financing of terrorism. Investigation follows our announcement last August that we are to review all our retail clients in the Netherlands and that sanctions, such as an instruction, fines, may be imposed by the authorities. The investigation focuses on whether we have complied with requirements to having client files in good order, the timely reporting of unusual transactions and a prompt discontinuation of client relationships.

For us, it's a key priority that we fulfill our duties and responsibilities as a gatekeeper of the financial system in detecting financial crime. While the timing of the investigation is uncertain, we are getting on with ensuring we are fully compliant and future fit. We've already centralized our DFC activities, enabling further specialization, consistency and leverage knowledge across the bank. As you know, we have remediation programs running at ICS, Commercial Banking and Retail Banking. With these programs, we have now taken in total EUR 226 million in provisions for external expenses alongside significantly increasing [Basel] expense on DFC. We expect a step up in spending to continue.

We have completed the comprehensive independent review of our organization to ensure full compliance with legislation. We have incorporated recommendations arising from this into a new delivery plan in collaboration with the regulator. We will further update you on this in Q4.

We're also in dialogue with public parties to investigate further cooperation to fight financial crime and will explore possibilities of setting up a joint organization to monitor payment transactions with other Dutch banks. We are pleased with the Dutch cabinet's plan to clamp down on money laundering, improving cooperation between the government and banks and among banks. Strict compliance is a license to operate. So we remain vigilant in detecting financial crime, and we'll continue to make the necessary investments.

I would now like to hand over to Clifford to take you through our third quarter results. Clifford?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [3]

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Thank you, Kees. Turning to Slide 6. As Kees mentioned, we are pleased with our robust third quarter results with a net profit of EUR 558 million. Net interest income remains strong, and fees are higher when you exclude the sale of startup. Other income was low this quarter, mainly due to low private equity gains, which can be volatile.

Operating expenses are well controlled. I'm pleased the impairments are moderate, again, this quarter, 16 basis points. Tanja will give you more background on this.

I'll guide you through the individual line items on the next slides but first, our client lending on Slide 7. Kees updated you on developments in the mortgage market. I'm pleased that our mortgage volumes are somewhat higher again this quarter, reflecting our strong market share in new production of 22%. We continued to deliver on our CIB refocus, and the more capital-efficient business model is shaping up. So total CIB volumes are down somewhat this quarter. We reduced our exposures specifically in TCF, Trade & Commodity Finance, including diamonds and global transport and logistics. SME lending's saw a slight decline reflecting our focus on margins.

Turning now to NII on Slide 8. NII remains strong this quarter. Let me remind you that last quarter included EUR 45 million in one-offs, largely related to DSP. As you can see on the right, low liquidity management costs largely offset the around EUR 20 million decrease in NII due to low interest rates. Liquidity management costs were lower again this quarter largely due to the roll off of some larger FX positions. The EUR 20 million decrease due to low interest rates is in line with our guidance from last quarter of around EUR 20 million sequentially into 2020, excluding mitigations.

It's possible that interest rates have recovered somewhat in the last few weeks after first declining materially following our Q2 results and looking through the recent volatility, our outlook on deposit margins has not changed materially from Q2. And so our guidance remains the same.

Following the announcement by the ECB, we expect a positive net impact of the ECB deposit tiering of approximately EUR 60 million per year, and this will mitigate some of the impact. In addition, we continued to work on mitigating the impact of low interest rate environment. As discussed by Kees, we're developing new products, selectively charging negative interest rates declines and continued to work on our cost initiatives.

As we've said before, we expect NII to be around EUR 1.6 billion next quarter.

Turning now to fees and other income on Slide 8. I'm pleased that excluding divestments of Stater and Channel Islands, fees are higher somewhat compared to last quarter due to the acquisition of private banking activities in Belgium and a strong quarter by Clearing. As you know, in CIB, the business model is becoming less capital-intensive and is starting to generate more fees from distribution. We're also working hard to grow income with initiatives on investments and insurance in retail.

Other operating income was low, as I said previously. In general, last year, all volatile items were relatively high while this quarter, more or less every item was low. So truly some volatility there. This is especially the case for private equity gains, which were EUR 107 million in Q3 last year compared to only EUR 20 million this quarter.

XVA was actually negative this quarter, driven by low interest rates and increasing derivative exposures. We maintained our long-term guidance for other income of around EUR 125 million per quarter, although it can be volatile, as you've seen, in any one quarter.

Now moving to costs on the next slide. I'm pleased with our performance on costs, which have continued to steadily trend down for a number of years now as a result of our strict cost discipline. As you can see here in the left-hand chart, personnel expenses continued to decline, reflecting low FTEs. However, other expenses increased this quarter due to higher DFC costs, including an additional provision for Commercial Banking of EUR 27 million. In the right-hand chart, you see we have realized further cost savings of EUR 53 million versus Q3 last year, bringing the total to a run rate of almost EUR 850 million and on track for EUR 1 billion target in 2020.

Year-to-date, we are running at a cost level of around EUR 5 billion annualized, excluding remediation provisions.

Going forward, we expect further material cost pressure for DFC and ongoing wage inflation, but we see some offsetting movements in respect to cost programs. We do not expect major cost programs in the near future, but we'll continue our proven approach of executing ongoing cost initiatives, for example, the greater use of cloud-based services, the introduction of DevOps in our IT teams. And we also continue to put out rationalization and process improvement across the business lines and support functions. So continuing steady progress on costs, which will balance the cost inflation that we see from DFC and ongoing wage inflation.

I'll now hand over to Tanja to pick up on impairments on Slide 11.

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Tanja J. A. M. Cuppen, ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board [4]

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Thank you, Clifford. Third quarter impairments were moderate at EUR 112 million. This amounts to 16 basis points cost of risk for the quarter and year-to-date, well below the through-the-cycle cost of risk. We are pleased with our progress in derisking CIB, and we are happy to see that this is paying off. Impairments in CIB were modest and are mainly in energy, in offshore services and upper midstream and in diamonds. Impairments and Commercial Banking were due to the offshore support vessel sectors and a new file in utility sector. We expect an uplift in impairments in Q4, reflecting, in particular, in offshore services and in Retail Banking predominantly from model refinements. We reconfirm our full year expectation of below through-the-cycle cost of risk of 25 to 30 basis points.

I'll now hand back to Clifford to discuss [Kendu].

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [5]

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Thank you, Tanja. So turning now to slide 12. You can see our base of Basel III capital position remains strong with the CET1 ratio of 18.2%, well within our target range. Small uplift reflects the divestment of our share in equensWorldline in the Channel Islands. No additional TRIM or model review add-ons were recorded in Q3 2019.

Looking forward, we do expect the serious impact on Basel III RWAs from TRIM, model reviews, definition of B IV and the announced risk weight floor mortgages by the DMB taking place in 2020. From our perspective, all of this is frontloading of Basel IV, for which we are already very well positioned. We have a strong Basel IV capital position at around 13.5%, again, excluding our year-to-date profit.

Our leverage ratio was also stable at 4.2%. As you know, our prudent capital management reflects the context of commercial and economic circumstances, including lower for longer as well as a tough regulatory outlook. We will decide on our dividend at the full year.

I'll now hand back to Kees to update on our targets.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [6]

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Thank you, Clifford. Operationally, the bank is doing well and I'm pleased, as I said, with our ROE of 11%, well being within our target range. However, we need to recognize that the sector is currently facing major challenges, including the continuing low interest rate environment. We are under investigation from the Dutch prosecutor. Strict compliance is our license to operate, and we will continue to make the necessary investments. Given the lower-for-longer interest rate environment, it will take longer to reach our cost income target of 56% to 58%.

Our capital position and capital generation remain strong. And with a Basel III [CET1] ratio of over 18%, we are well positioned to manage the transition to TRIM and Basel IV. As Clifford indicated, the dividend is a year-end position.

So before we go into Q&A, I would like to briefly recap the highlights on Slide 14. As said, the last quarter was mixed, but I'm pleased with our robust financial results and solid operational delivery during the quarter, given challenges across the sector. While dealing with these challenges, we continued to take the necessary action and to focus on our operational delivery.

Now I would like to ask the operator to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Mr. Pawel Dziedzic, Goldman Sachs.

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Pawel Dziedzic, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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I have 2 questions. So the first one is on costs, and you highlighted that you will no longer be able to reach your cost income target. And you made some remarks on your absolute cost base. But if -- I was wondering if you can dive a little bit deeper into that. Are you still confident that you can get to around EUR 5 billion cost base next year? And can you give us a little bit more sense and at least the scale of cost inflation that relates to the step up in those costs related to financial crime that you mentioned in your opening remarks? That will be very useful. Then the second question is on your pricing of deposits. You are, again, clear that you will not charge negative rates to deposits below EUR 100,000, but you also highlighted that 40% of balances would not fall under this restriction and are currently not charged negative rate. So can you help us understand what exactly is the strategy there going forward? And how it differs between, let's say, Retail, Private Banking and corporate clients? Essentially, what's prevented you, as you see, now from charging the rates -- negative rates to those clients in the past? And do you think it can change going forward?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [3]

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Well, thank you very much. I will take the second question, and Clifford, you can take then the first. With respect to the pricing of deposits, it's correct indeed that around 40% of our deposit base, which is around EUR 100 billion, is not at this moment in time, has negative rates. What we've done in the past is that, as I said, we charged our CIB clients and our largest CB and Private Banking clients, we started with thresholds above EUR 25 million, went down to EUR 10 million. We see lower amounts in the market right now. We are not allowed to guide on that at this moment in time. So you will have to await our action and then we will communicate. That's the way we have done it in the past. And if we take action in the future, we will do the same. But you're right, there's EUR 100 billion, yes, let me put it that way, territory where we can apply negative rates going forward.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [4]

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Pawel, on costs, I'll just say -- I'm looking at Page 5 in the slide deck. But as I said, we're traveling at around EUR 5 billion costs already. So that's our base position. And that's consistent with our planning that we've set out in the past. And that already includes the step up in DFC costs that you see on Page 5. So you see year-to-date, business as usual, detecting financial crime cost actually well ahead of the total spend for last year, so annualized step up. And we expect that step up to continue, I would say, significantly in relation to amount of around a little over EUR 100 million for the first 9 months. I think going forward, we've taken benefit of provisions in the past and that will shield some of the incremental costs going forward. You can see the significant provisions we've taken on Page 5. But we do expect DFC business as usual costs to step up further. And in due course, they it may well come down. But for the time being, it's an increase. What I would highlight, and I used the word balance on the presentation, is you should see those incremental DFC costs balanced by our further cost-saving programs. And we're pleased with progress of 850, but that means we have another EUR 150 million of cost savings further to go through next year. So quite some potential, and that would give us a balance. I know the consensus that you indicated, but I'll leave it at that, and we'll give further guidance next year as we're closer to the results.

I think on -- actually, just on cost income ratio, just I sent a final comment there. I think as Kees indicated, we think the cost income ratio target will be delivered later, primarily as a result of income coming down, not costs. So I talked about factors balancing out on the costs front, but it's really the income movement that's caused us to defer that. I don't think that should come as much as a surprise. So we reconfirmed the EUR 20 million sequential reduction, and that gives rise to hundreds of millions of NII pressure, which we can't mitigate over a period of one year. So it's really [CAT], that's prompted us to indicate today the target will take longer to achieve. Any further questions?

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Operator [5]

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I don't think so, sir. I'm going to follow with the next question. It's from Mr. Adrian Cighi, RBC Capital Markets.

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Adrian Cighi, RBC Capital Markets, Research Division - Analyst [6]

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Two questions from our side. One on capital and one on NII. On capital, your target capital ratio of 17.5% to 18.5%, how confident are you that it captures the latest uncertainty in the Dutch prosecutor investigator? Or put it differently, are you still aiming for additional distribution of above 18.5% range while the AML investigation is ongoing? And on NII, you mentioned that you maintained a EUR 20 million quarterly headwind, and while it's understandable, given the volatility in the swap rate, it has been showing quite a material improvement versus the 7th of August, almost 23 basis points to now 27 basis points negative. Can you give us an indication of what the EUR 20 million figure would translate into, assuming the current run rate under swap?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [7]

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Thank you for your questions. So I'll take the first one. Clifford, can you take the second one? On capital, our guidance has not changed. The guidance we've had before as a result of the investigation, of course, at the end of the year, we will take everything into account, so also that. But the 17.5%, 18.5% and where we are at this moment in time has not changed.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [8]

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Yes. I think on NII, the sensitivities, I think, we're one of the few banks that give very clear indications of the financial impacts. So I think sensitivities would be sort of the best practice in this respect. I'm looking at the rates in Q1 and Q2 and Q3. And we've given guidance. So in Q1, we said EUR 10 million. In Q2, we said EUR 20 million, and now we're saying roughly EUR 20 million. I think the rate picked up relatively recently, really at the tail end of Q3 and October, November. And it looks to me like it's somewhere in between. But I think even those data points that I have set out, you can form your own views. Now when we give guidance, we don't mark to market every quarter. We reflect on our own views of interest rates as well. So it's a judgment rather than a specific estimate reflecting forward rates. And we do see the benefit of rates having picked up. And if they change, we'll update our guidance again in Q4. But let's see how sustainable these rate increases are.

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Operator [9]

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The next question is from Mr. Stefan Nedialkov, Citi.

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Stefan Rosenov Nedialkov, Citigroup Inc, Research Division - Director [10]

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Stefan from Citi. Two questions from me as well. Just coming back on the provisions for KYC, Financial Crime Detection, et cetera, EUR 226 million. Could you provide us with a breakdown of what those provisions were for? Was it extra external costs for consultants? Is it IT hardware, software, et cetera? Color on that would be extremely, extremely useful. Then also related to that, I see in your report, you talk about 200 to 240 FTEs, more or less, being hired for these compliance initiatives. Are these employees, or I should say, FTEs here to stay? Are they hired for a period of, say, 12 months? Just give us a breakdown of how many people work on these initiatives? How many of them are internal employees? How many of them are external? And the external ones, when are they likely to leave? We would just like to get a bit more of a grip on this escalation in the compliance band ideally. And the second question, hopefully, a quicker one. Any update on the CEO succession?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [11]

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I'll take the second one. Thank you very much, Stefan. No, there's no update on CEO succession. Process is going well. When we can, of course, say something when the Supervisory Board, of course, they will do that. With respect to the first question, Clifford?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [12]

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Yes. Just -- we'll give some color, but we also guided to Q4 where we'll give more detail. I think on provisions, you're right, it is external expenses. So particularly where we have remediation programs, where we are upgrading our KYC files, we take on external staff to which we can ramp up quickly, and those are the bulk of the current sort of increases in FTE. And for those specific costs, we can book a provision for those. Those remediation programs also incur internal costs, and you'll see those come through the P&L later. I think in terms of FTE, over the last 6 to 12 months, a lot of the FTE increases have been around these remediation programs. I think going forward, we expect to see some change in mix of that. As those remediation programs get going, you'll see those numbers flatten off and eventually come down. And we will build up further our business as usual FTEs in relation to Detective Financial Crime. So those folks will be engaged in a transaction monitoring and ongoing file reviews. And in the medium term, we see opportunity to automate and get efficient at these activities. So we'd expect to see costs and FTEs coming down, but that's a little bit far of. So that gives you a flavor for the ramp-up and the ongoing developments. And obviously, we'll update you going forward.

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Stefan Rosenov Nedialkov, Citigroup Inc, Research Division - Director [13]

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Clifford, just to follow up on this. Do you have around 1,500 people? I have something like that at the back of my mind from previous updates working on KYC, more or less?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [14]

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Yes. Yes, in that order.

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Stefan Rosenov Nedialkov, Citigroup Inc, Research Division - Director [15]

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Okay. And of that amount around EUR 200 million to EUR 250 million would be external people right now?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [16]

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No, I won't give a breakdown on that. It gives you a slide. I mean it gives you -- it's just under 10% of our total staff. So we're trying to give an indication of the resource commitment in this area. But it's a mix, it's a mix of internal, but the externals are primarily engaged in remediation and that we use external or shorter-term staff so we can ramp it up quickly and then in due course, bring it down cost effectively when those programs have been completed.

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Stefan Rosenov Nedialkov, Citigroup Inc, Research Division - Director [17]

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Okay. But the 1,500, that includes internal people who have been moved from other roles to help with the KYC -- permanent KYC plus external?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [18]

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Yes. And I think if you think about the ramp up of our costs, we've already got a significant commitment. It's in the numbers that were in the slide we talked about, and it's also in the EUR 5 billion run rate. So when you think about DFC inflation, we've already absorbed quite a lot of it, although we do expect further inflation going forward, albeit balanced by the cost-saving programs I indicated.

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Operator [19]

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Next question is from Mr. Robin van den Broek, Mediobanca.

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Robin van den Broek, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [20]

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The first one is on NII. If I take your underlying run rate for Q3 of EUR 1.61 billion and then factoring the EUR 20 million sequential headwind from replicating portfolio and I add EUR 60 million for deposit tiering next year, I basically get to consensus for next year. And I was just wondering if you could talk a little bit about loan growth perspectives, better loan margin repricing and the prospects of negative deposit rates. I mean presumably, those should still be positively driving NII next year. Now in the CIB, I think you're still aiming to go up the quality curve so that probably leaves some NII on the table. But some comments around that would be quite helpful. The second comment is, I'm sorry to come back on this, but it's on capital. But the fact that your capital ratio on last year's payout ratio is at 18.8% should imply, in fact, that probably your payout ratio year-on-year should go up, assuming that you will adhere to the 17.5% to 18.5% target range as you seem to indicate or is there any risk that you're going to frontload some of the headwinds you see coming in next year, amongst others, the more sizable mortgage density risk increase, which is imposed by the Dutch Central Bank. And then a small follow-up on a capital. As your Basel IV position is still flat year-to-date, while also in Q3 you sold some assets, so why isn't that reflecting your Basel IV position?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [21]

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I'll start answering and then Clifford, please add. I think portfolio-wise, we're doing good as a bank, and we also expect that to continue next year. As said, mortgages were well placed. We're making good margins, and portfolio has grown in the third quarter by EUR 800 million. So that's good. The Dutch economy is performing well. So also on the back of that, we expect to continue SME to finance themselves also via bank, of course. So that's good. We see growth in the portfolio as well. CIB has delivered a year earlier than expected on the EUR 5 billion reduction risk-weighted assets. So they did a great job there. As said, the third quarter a 9% ROE results. So that's actually very good. Happy -- we're happy with that. And indeed, looking for better-quality deals, more fee-driven originate-to-distribute opportunities and the likes. So from that side, we are positive about debt development. On the asset side development, we are positive about NII. Now with respect to the deposits, Clifford just mentioned EUR 20 million sequential, and I talked about EUR 100 billion deposits not having negative rates. So that's the position over there, and you have to make your calculation there. With respect to capital, and I cannot guide you anything new, as I said before, your figure is right, the 18.8% Basel IV is 13.5%, indeed, excluding profit but including profit is close to 14%. I think the asset question, why it's not further improved...

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [22]

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Yes, I'll take that up. I think we need to recognize these are quite modest movements. There are actually couple of things that are a bit technical. So Basel III was a little stronger than Basel IV. And in respect to the disposals, actually the risk weighting for these sold assets was higher under Basel III than Basel IV because under Basel IV, we have the benefit of the output flow. So that benefit was lower in Basel IV. And we also shifted some of our sovereign exposures. And the Basel III regime is actually a bit more favorable risk weight for these assets in the target credit ratings than then they are on the Basel IV. So some very specific explanations, but you can see the regimes are slightly different and the margin effects are a little bit different. The big picture, excluding accrued profit, our Basel III is pretty flat and our Basel IV is pretty flat now. I think that gives us confidence, given the strength of the business and the more challenging market environment.

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Robin van den Broek, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [23]

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And then maybe one follow-up on the NII question. I appreciate what you said that you're positive on the asset side of the balance sheet, but if I would take similar rationale from the Q2 starting point of EUR 1.64 billion, your underlying seems to have dropped by more than EUR 20 million. Any specifics on why that is the case?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [24]

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I think I highlighted the incidentals. I mean you see our bridge on Page 8. So again, these are quite small movements. There's always a few things going on in the numbers, but we see underlying around EUR 1.6 billion. Hence, our guidance for Q4. And I think Kees has run through the developments for next year.

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Operator [25]

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The next question is from Mr. Benoit Petrarque, Kepler Cheuvreux.

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Benoit Petrarque, Kepler Cheuvreux, Research Division - Head of Benelux Equity Research [26]

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Questions on my side. So first one is on the money laundering part. So could you update us on the kind of main outcome from the review you have done of the DFC? I think you've said in your presentation that you put recommendations in a new delivery plan submitted to the regulators. Could you guys give us the main kind of colors or highlights from this plan? Is there any sales issues reported to the regulators? Second one is on the other income. I think you still maintained your kind of EUR 125 million per quarter guidance. I think the underlying is much weaker than that. Why are you are confident to maintain kind of the EUR 125 million? Do you expect higher private equity gains next year? Or what makes you confident on this guidance? And the last one was just maybe on these negative rates opportunity. I don't think there's much banks putting a treasure on that EUR 100,000. So could you give us a bit more details, for example, putting a treasure that at EUR 1 million instead of EUR 100,000, how much of your deposit will actually be in scope for a deposit cut?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [27]

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Thank you very much for your questions. I'll take the first and the last. Clifford, can you do the second?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [28]

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Yes.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [29]

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With respect to money laundering, I think it's best practice that you hire also, in this case, as an external party to also check if you have done everything well to best practices in the market. That's what we've done. We had a plan already sent to Central Bank, and we have augmented that further after the -- well, the benchmarking, we also got from external parties. So I think that is best practice use, improvements from their side incorporated in our plans and send it now to regulate. So that's there. With respect to negative rates. Yes, I think there is -- we can further break down. I don't have all the figures, but for instance, to give you one indication around, it's a bit over EUR 30 billion, for instance, you see some amounts in the market around EUR 2.5 million. This actually is for us around a bit over EUR 30 billion, for instance, to give you an indication, which is above EUR 2.5 million for us.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [30]

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Yes. And just on other income, Benoit, I think if you look at the chart, and I concur with your view that other income has been, call it, at the low end of the range or lower than our guidance in the last few quarters, but was actually materially higher prior to that. And so when we look at the volatile items, we can't see a structural change, but we know there's been -- there's clearly volatility. And if we do see a structural change, we would update our guidance. So I think the nature of that bucket is you always get volatile items. And just to exclude the model and look at underlying, I don't think it's the right way of doing it. I think look at it over time and then consider whether there's sort of structural changes to it, which we don't think that is the case. I think we have been disappointed on relatively few private equity gains this year, and we have got meaningful capital still committed and expect a return on that, which will come through the other income line going forward.

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Benoit Petrarque, Kepler Cheuvreux, Research Division - Head of Benelux Equity Research [31]

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So could you update us -- thank you for the answers, could you update us on the size of the portfolio for the private equity portfolio?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [32]

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Yes, it's around EUR 600 million.

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Benoit Petrarque, Kepler Cheuvreux, Research Division - Head of Benelux Equity Research [33]

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EUR 600 million. Okay.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [34]

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Yes.

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Operator [35]

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Next question is from Mr. Albert Ploegh, ING Bank.

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Albert Ploegh, ING Groep N.V., Research Division - Research Analyst [36]

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The first one, you had to come back to the negative rates. Yes, so basically today, 20% of the deposit base already is subject to negative pricing. So can you maybe help us a little bit how much that is in terms of NII on an annualized basis and what kind of levels it's currently being charged? Because also to understand, as mentioned earlier, 40% of the base is -- of the deposit base is not yet subject to negative pricing, but could potentially. But current lines already have negative rates and apparently they have accepted this. So to understand a little bit what kind of headroom you have on the existing deposit base that is subject to negative pricing? So that's the first question. And the second one is on the capital, and sorry to come back to a little bit to previous question on the RWA outlook also for Q4 and, hence, also the dividend. I know there are a lot of known and unknowns in that respect on RWA headwinds, but are there already some you think you already know that would come in Q4 or you're very much expecting to get some feeling on what the RWAs may enter for the full year at least because Q3 obviously was actually, in that respect, in a positive price?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [37]

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Yes. The -- I'll tackle those two. And Tanja, please help if I lose my way. I think on negative rates, so the bulk of that is in CIB that we charge currently and so I would just look at the CIB segment disclosure. Effectively, we're passing on with the market rate in those areas. So we're not making material margins on CIB deposits, but neither are we losing money because those are not part of our replicating portfolio typically. And so the margin pressure is really on -- reflects the 2 buckets of 40% that Kees talked about. And with the -- and he gave you some guidance around pricing in that context. I think on RWAs, I talked about inflation. We see that very largely in 2020, all those regulatory headwinds. I mean it's possible some of the plans before Q4. So TRIM, it's possible, but we think more likely next year. And so clearly, as you'd expect, I think, one of the early calls, the dividend is not a mechanical calculation. So if we don't get the inflation in Q4 but we expect it in Q1, we're not going to ignore that in our judgment around dividends. So that capital target is a zone in which we would consider additional distributions, not a mechanical framework.

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Albert Ploegh, ING Groep N.V., Research Division - Research Analyst [38]

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Yes. Maybe to come back on the follow-up on that because I know your dividend policy in a way is formulated quite mechanical, and we all know the environment that banks operate in. So -- but in a way, I mean you've been paying [1 45] for the last 2 years. Consensus was always way above those levels and in the meantime have even come below for '19 and also for 2020 on the 1 45 . So how important is it for ABN AMRO to have at least stable dividend? Or is it not a secret, so to speak?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [39]

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We don't guide on that right now, Albert, sorry for that. But in -- that is a Q4 decision.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [40]

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Nice try. Next question.

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Operator [41]

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Your next question is from Mr. Tarik El Mejjad, Bank of America.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [42]

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Just one question actually on the costs to come back to that. So the -- in the Slide 10, you effectively mentioned that year-to-date, the annualized run rate is around EUR 5 billion, but that's excluding the remediation provisions. And so how confident are you just to reiterate the EUR 5 billion, despite actually mentioning that this remediation and DFC costs and compliance will continue to ramp up? I understand that there's still some cost savings to come maybe around EUR 150 million, but this were already factored in your initial EUR 5 billion guidance. So I'm just trying to really understand here the different moving parts. And maybe just quickly on the dividend, follow-up on the previous questions. Do you have in mind progressivity of dividend? Or just sustainability in a sense that you still want to be able to pay a decent dividend over time?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [43]

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I'll take the second one. We don't have progressive dividend, as you know, and the guidance is, as mentioned before, that Q4 we would look at the target range and all our expectations around that at that moment in time. With respect to cost, Clifford?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [44]

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Yes. I think we haven't reconfirmed the EUR 5 billion for next year. We're sort of careful in how we choose our words. I think we are -- you're right, when we indicated the run rate of EUR 5 billion, that does exclude the remediation provisions, that EUR 200 million or so. However, that does include -- the kind of EUR 5 billion does include the step up in financial crime costs and business as usual to date. So I would say I'm pleased that we've managed to absorb that meaningful inflation and still be today at around EUR 5 billion and still have EUR 150 million of cost savings. So that gives you a feel for our buffer or headroom in our ability to absorb further detecting financial crime costs going forward or the business as usual nature. As Kees said, we'll make the necessary investments. We think ensuring that we're fully compliant is money well spent, and we'll spend the money to do that. But we're doing that cost efficiently, but we need to make that necessary investments. Outside that, the business is very focused on continuing our track record of consistent cost discipline, which you've seen quarter-on-quarter over the last few years, and that will continue.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [45]

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Okay. I mean because just -- I mean, sorry, I didn't get really the full answer, to be fair. I know you've tried. But so are you -- so you're not confirming the guidance. You're trying -- you do your best to achieve it, but at this stage, given the compliance costs and so on, it's still difficult to get to the EUR 5 billion? I mean, also, I mean, no...

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [46]

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What we're saying is that we are currently at around EUR 5 billion. There are cost headwinds, which we flagged, but they're also cost -- further cost savings. And so precisely where that balance lands, we're not calling today but given the quantums, you can form your own view.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [47]

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Okay. And in terms of these extra investments and your previous answer in the call, you mentioned that some of them might decrease over time. Fair enough. You said it's not soon, but later. I mean the experience shows that other banks that were involved in money laundering in the past, this becomes quite sticky and structural costs, and probably you need a new savings program to offset these and absorb these. So if I understand, this is not something you contemplate at the moment to put in place saving program to offset these costs.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [48]

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We are thinking about it, but I think it's early days in terms of how we communicate externally, and I think the key message is that we expect the ramp-up to continue. I do think big picture, I think the business as usual costs on AML will be higher in the future than the past. I don't think that should become as any surprise to you even after the benefits of automation. And these costs are meaningful margin of our cost base. But in terms of our overall spend, I mean it's still relatively a small proportion, but it's clear that we and the banking sector as a whole will need to put material resource commitments to this going forward, even if we can automate a lot of these activities.

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Operator [49]

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Next question is from Mr. Bart Jooris, Degroof Petercam.

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [50]

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Sorry to come back on the dividend policy. You are now already on target. And if you include profits above target regarding your Basel IV ratio, your Basal III ratio range was set so high because of the Basel IV impact, and the regulatory pressures you expect in 2020 are only having an effect on the Basel III impact. So I was wondering when you decide about the dividend, will you also look at what the Basel IV ratio is at that time? Or are you just simply keeping a look at the Basel III ratio, including what you foresee as regulatory pressures? You have already any idea on a quantified impact of those pressures, by the way? And then my second question is, well, relating to NII. How much do you plan or have you decided already to put in TLTRO? And also, there was a speech yesterday by Benoît Cœuré, saying that even also Dutch banks are starting to lend money to Italian banks in order to offset further their cash surplus. Are you participating in that?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [51]

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We will at the year-end also look at Basel IV, so not only Basel III. We will look at both. Any indication about the regulatory pressures. I don't think so.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [52]

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No. No. So on the other elements, I think we don't have current plans to take advantage of new TLTROs, given our funding alternatives. And our exposure to Italy, generally, is pretty modest.

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [53]

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And it has not increased in the last month, let's say?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [54]

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No.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [55]

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No.

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Operator [56]

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Next question is from Jean-Pierre Lambert, KBW.

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Jean-Pierre Lambert, Keefe, Bruyette & Woods Limited, Research Division - SVP and United Kingdom Analyst [57]

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Two questions, please. The first one is regarding the risk of a fine as you are in discussions with the authorities. At what point would you consider prudent to take provisions for such a fine to build up a buffer, if you want? The second question is regarding to the cost. I'm sorry to come back to the EUR 5 billion cost base. So you have about EUR 133 million already included if you annualize, and that's the green part of the stack in page or Slide 5. But then if you do some calculations with cost inflation and the savings, you're indicating EUR 150 million potentially. So then you could afford about EUR 207 million. So the total you could afford to have flat cost base if you want or the EUR 5 billion would be for DFC around to EUR 320 million, let's say. So what are the chances of your costs of DFC going above the level of, sorry, EUR 240 million? It's not the chances on the cost base for DFC next year to be above EUR 340 million?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [58]

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Thanks, Jean-Pierre. Clifford, you can take the second one. First one, I think we can only take that into account when we have a clear indication about a fine, we cannot do that just randomly.

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [59]

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Yes. IFRS tests will apply. So I think on the -- I think your calculations sounded pretty good to me in terms of measuring the bar and thinking through the ability to absorb further inflation on DFC. So that sounded pretty good. I'm not going to give a likelihood on above or below. But I think if you work through that approach, which I thought was good, the delta is a pretty small in relation to EUR 5 billion. So that should give you a feel for the balances involved, and we're not calling above or below, but order of magnitude, it feels like you've got the right approach to me.

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Jean-Pierre Lambert, Keefe, Bruyette & Woods Limited, Research Division - SVP and United Kingdom Analyst [60]

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But then I can see you're mentioning that you have a plan, a new delivery plan so you must have some idea for the potential cost in 2020?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [61]

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Yes. So we do. I think as you'd expect, we are very much on top of these matters. I think the caution in giving specific -- we're not giving a specific forecast for the total cost base. So we're not going to give specific forecast for individual items. I think where -- our caution is in some parts of the plan, things will go well, in some areas, things might go less well, and we'll adapt the plans to reflect that. And so we recognize this is an area of focus, and we'll be happy to update on Q4, and we'll have more to talk about at that point.

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Operator [62]

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Next question is from Mr. Kiri Vijayarajah, HSBC.

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Kirishanthan Vijayarajah, HSBC, Research Division - Analyst [63]

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First question on Dutch mortgage probably. You usually get a year-end spike in repayments. I just wondered do you expect that to be a bit more severe this year? Because you've increased the incentive for people to run down the deposits and then simultaneously pay down their mortgages? So in other words, does the pushing to negative rates further encourage household deleveraging, particularly if kind of the other big banks in the Netherlands sort of follow your push today? And then secondly, just follow-up on the -- your guidance for model updates and increase in the 4Q cost of risk. Is that -- was that -- it's primarily just IFRS 9 stage 1 and stage 2 provisions we're talking about or is there something else going on that we should expect in 4Q?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [64]

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Thank you very much. Tanja, if you can take the second, I'll take the first. Indeed, Q4 is always a quarter where people -- because the 1st of Jan is a taxable moment. People look into opportunities to pay back some extra mortgages. We don't expect it actually to be more severe, of course, it's new. What we have decided today, communicated today, so we don't know, of course, this is the first quarter, we'll see. We have no expectations yet that, that will be clearly more severe. But it will be always -- portfolio will go down in the fourth quarter, but that we've seen in the last couple of years. Tanja?

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Tanja J. A. M. Cuppen, ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board [65]

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Yes. Thank you for your question. On the model updates, indeed, we are reviewing the IFRS 9 models, actually all model stage 1, 2, 3. And it will mean some changes in the model provisions in all these 3 stages.

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Operator [66]

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Next question is from Ms. Alicia Chung, Exane.

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Alicia Marianne Chung, Exane BNP Paribas, Research Division - Analyst on the Pan-European Banks Sector [67]

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A couple of questions from me. First of all, you highlighted to us not so long ago that the definition of default would be one of the headwinds for ABN in terms of capital. Is this something that you can now come back to us and give us some sense of the quantification of that headwind, at least a kind of a ballpark view? Also, can you give us an update on how we should be thinking about the risk rating of NHG mortgages under Basel IV, which may or may not be another 90 bp headwind? And then secondly, on provisions. Your coverage ratio now stands at 28% on a group level, and the coverage ratio on corporate loans has been falling every quarter now for the last 4 quarters, while stage 3 loans have been picking up. Can you explain what is driving this? And also, given the ongoing challenges in CIB and the very low coverage ratio there, how should we think about the provision outlook for next year? Is it fair to expect it to move within your 3-in-the cycle range now?

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [68]

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Thanks, Alicia. Can you answer them, Tanja?

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Tanja J. A. M. Cuppen, ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board [69]

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Yes. So your question with respect to definition of default, well, I think not a lot we can say at this stage. Yet, we are in the midst of implementing this into our systems and are looking at impact but also on as regulatory feedback, and we expect that -- well, to come well either this quarter or in Q1. So hopefully, we can update you more on that in the next update in the next quarter. On the, I think, NHG, yes, there have been no developments there. So we continue to include it in our Basel IV guidance as we did before. And with respect to the coverage ratio on our stage 3, and you've seen that indeed over the past year coming down somewhat. Last quarter, that had to do with the fact that we've changed our, well, definition of defaults are unlikely to pay figures for mortgages, and that led to an increase in stage 3 loans and a drop in coverage ratio, given the low coverage on these assets. This quarter, we had some inflow from CIB assets that are -- well, covered by collateral and, therefore, have a low coverage ratio as well. So that's the other reasons. Yes, towards next year, I think you mentioned already, while the economy is doing okay, we expect 1% GDP growth in the Netherlands. So you need to consider that in our outlook. You can expect that our provisions will move somewhat towards the average cost of risk that we guide.

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Alicia Marianne Chung, Exane BNP Paribas, Research Division - Analyst on the Pan-European Banks Sector [70]

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Okay. Very clear. And just sorry to clarify on the NHG mortgages. You said that is within your Basel IV guidance. So in your Basel IV guidance, what risk weighting do you give to NHG mortgages?

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Tanja J. A. M. Cuppen, ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board [71]

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No. Sorry it's 0% weighting.

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Alicia Marianne Chung, Exane BNP Paribas, Research Division - Analyst on the Pan-European Banks Sector [72]

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Sorry?

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Tanja J. A. M. Cuppen, ABN AMRO Bank N.V. - Chief Risk Officer & Member of the Executive Board [73]

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0% weighting.

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Operator [74]

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(Operator Instructions) There is a question from Mr. Robin van den Broek, Mediobanca.

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Robin van den Broek, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [75]

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Sorry to come back on the queue. Just one question on the remediation provisioning. I was just wondering what's driving the forward-looking guidance potentially here? Is it simply the temporary FTEs, the external FTEs and the speed of their file handling that could make you provision more or less going forward? What are the drivers there? And secondly, the IT investments. I think you've been hinting that they can come down. That's not part of the EUR 150 million remaining cost save program, if I understand correctly. Is that correct?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [76]

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Yes. So I'll pick up both. So on -- you're right on the remediation provision, we make a series of assumptions about number of files that we need to remediate, how long it takes and the cost of doing that. So a key driver is the velocity and quality of our file reviews. So that -- I would highlight that as a key factor. And what you see typically is when you start, it takes a while for these files to be reviewed to quality. As you get going, you get the machine working, quality improves, velocity improves. So there's more uncertainty at the beginning, that's generally how these things work. I think in terms of IT investments, I think you're right that we had a series of cost programs. We had the original cost program that was announced in '16. We had further cost savings identified in respect of the corporate bank and that's around EUR 1 billion. And then we set out yet further cost savings in respect to IT and moving towards the sweet spot in IT, but that was always expected to take place over a period of years, but we're expecting some of that into next year. So we feel good about our cost-saving programs alongside the necessary buildup in financial crime resources.

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Robin van den Broek, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [77]

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Okay. That's clear. And then just one silly follow-up. But the fact that we're moving into Christmas, does it affect the speed of file handling for the remediation provisioning in Q1?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [78]

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We've planned the Christmas.

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Operator [79]

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There is a question from Mr. Bart Jooris, Deegroof Petercam.

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [80]

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Sorry also. Two follow-up questions. You stated that the fees in Private Banking were up, thanks to the acquisition. Could you give us some underlying flavor what fees were doing without the acquisition? And then you also took a very small provision for SME derivatives. Could you confirm that, that is now completely behind us and that is now completely finished?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [81]

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Yes. I think on Private Banking fees, we saw the benefit also this quarter of recovered equity markets. So our fees in the Private Bank reflect all sorts of things, but in particular, the quarter start valuation levels. And so we're pleased to see that equity markets have moved up this year, and that's also supported fees coming through the Private Bank.

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [82]

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So there's some underlying growth also there?

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Clifford J. Abrahams, ABN AMRO Bank N.V. - Vice-Chairman of Executive Board & CFO [83]

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Yes. And there's structural changes, developments going on that industry year-on-year. But quarter-on-quarter, we're seeing -- we were pleased with the developments -- NII was positive in that business. So that was one reason for my confidence around fees earlier.

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [84]

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And the second question...

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [85]

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SME derivatives?

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [86]

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Yes. Is it...

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [87]

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It's done. Are we done?

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Bart Jooris, Banque Degroof Petercam S.A., Research Division - Analyst [88]

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Yes.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [89]

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I think so, yes.

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Operator [90]

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There are no more questions. Please continue.

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Kees C. van Dijkhuizen, ABN AMRO Bank N.V. - Chairman of Executive Board & CEO [91]

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Okay. Then I would like to thank you all for your questions. This concludes our Q3 results update, and thank you very much. Goodbye.

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Operator [92]

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Ladies and gentlemen, this concludes the ABN AMRO Q3 2019 Analyst and Investors Conference Call. You may now disconnect your lines, and have a very nice day.