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Edited Transcript of LANS.AS earnings conference call or presentation 27-Aug-19 7:00am GMT

Half Year 2019 Van Lanschot Kempen NV Earnings Call

´s-Hertogenbosch Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Van Lanschot Kempen NV earnings conference call or presentation Tuesday, August 27, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Constant Theodorus Leonardus Korthout

Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board

* Ingrid Rombouts

Van Lanschot Kempen N.V. - IR

* Karl K. Guha

Van Lanschot Kempen N.V. - Chairman of the Executive Board

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Conference Call Participants

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* Albert Ploegh

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

* Benoit Petrarque

Kepler Cheuvreux, Research Division - Head of Benelux Equity Research

* Cor Kluis

ABN AMRO Bank N.V., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Thank you for holding, and welcome to the Van Lanschot Kempen Half Year Results 2019. (Operator Instructions)

I would like to hand over the conference to Ms. Ingrid Rombouts. Please go ahead.

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Ingrid Rombouts, Van Lanschot Kempen N.V. - IR [2]

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Thank you. Well, good morning all. Welcome to Van Lanschot Kempen analyst's call. This morning, we published our 2019 half year results. Our Chairman, Mr. Karl Guha, will start the presentation with a short introduction and strategic overview. After that, Mr. Constant Korthout will present the half year's overview. And after the presentation, there will be an opportunity to ask questions.

Karl?

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [3]

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Good morning, everyone. Thank you for coming in on this or listening in, dialing in on this sunny morning. As the operator word is short so that's what Ingrid said in the introduction, I will keep to that.

First comments, I think a couple of different points. If you look at our financial performance, the headline numbers are good, maybe even, yes, good numbers. If you look at the underlying revenue numbers, they're decent set of numbers, but we have clearly sort of suffered from the underlying market conditions. Cost development, I would say that it's been very good. And cost of risk, whether in terms of credit, or overall risk profile, that's also I would say good set of numbers.

Capital. Obviously, the capital position is very strong and their remainder, in terms of capital position, Constant will comment on it later, so I will leave it at that. But we have certainly created the conditions that we need to do to fund our growth for the future.

If you look at the general environment, which, of course, affects our performance today but also in the coming months, I think there's the overall market condition and the geopolitical risks when one way or another translating into a volatile market. That's not good for us, and it's not good for our clients, so that's something that we need to keep an eye on.

The industry and environment, a long liability model, we have, to some extent, immunized the negative impact of this -- of interest rate environment but not entirely. It remains painful, but the choice that we made in terms of going for wealth management base strategy has certainly been beneficial to us. And I think the underlying message, really, for us is that our view is that will really run the course in terms of monetary policy. So unless there's some fiscal set of stimulus or related issues, we will continue to see this kind of an issue. And I think the underlying worry is whether this will ultimately, given the sort of mispricing of risk, whether it will ultimately lead to bubbles, but that's something that we have to watch out. And I think the regulatory environment, yes, that remains challenging for us so we just have to navigate that very carefully going forward.

What should we and what are we going to focus on? First and foremost, growth, both organic, meaning internal; and inorganic, meaning external. I think both of those will continue to focus. Cost control will continue to be and must be a focus. Capital discipline, we have always been. We are and we will continue to be very disciplined about our capital. And then if you look at the sort of underlying internal, what are the big transformations that are going on, it's the across-the-board progressive digitization of the firm along with usage of advanced analytics, that will continue and transforming the workforce. So those are the 2 main things that were driving sort of internal transformation.

And in terms of our own investment policy, the rest of it, I think we've made a very clear statement of moving from being a responsible investor to taking a more active role. And then I think you've seen the AuM numbers, those actually are pretty decent. We're almost at EUR 100 billion at this point in time. We certainly will put that to use to have the desired impact that we need to have. So those are the main focus areas.

I will stop now and hand it over to Constant, who will walk you through the numbers and the details that relate to it. Constant?

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board [4]

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Okay. Thank you, Karl. I would like to take you to the more detailed numbers for the first half. I will use the slide deck that's been available. And my first slide that I would like to use for that purpose is Page 7, of which gives you an overview of the main headlines in terms of numbers.

As you can see, our net result is up to a level of EUR 83 million. Last year, it was EUR 39 million. The difference is, to a large part, driven by 2 significant book profits that we reported earlier. It relates to the sale of participation called AIO/Medsen, and is also the sale of the remaining interest we [have with] Van Lanschot Chabot, VLC & Partners, that we sold in the first half. They contributed to our result.

If you would compare last year first half, this year first half on a like-for-like basis, you could say that result is at a comparable level bottom line. If you look more in detail, which are shown off on this page, we observed for the first half lower commission income, also lower interest income mainly due to market circumstances. I will elaborate on that later on. At the same time also, 9% lower expenses in line with the targets we've set earlier this year for the full year.

If you look at client asset, as Karl said, almost EUR 100 billion, EUR 97.3 billion to be specific. It's a plus of 20%. That plus 20% is on the back of one significant mandate, the Pensioenfonds PostNL, but also on the back of strong market developments in the first half.

If you take a look at our capital, capital ratios are up to a level of 22.7%. We will show you the details later on, which allows us to propose again to our shareholders to have a special capital return of EUR 1.50 per share, which is the same level as last year.

On Page 8, we show you a little bit -- some of the strategic steps we made in the first half, and notable is that we launched our new payments platform. All clients now have access to this platform, and the payment app is being used by all clients. We also made some next steps or aim to be prepared to next steps. I will say a little bit more later on in this call. Within the asset manager, we successfully launched our own European private equity fund, which raised EUR 122 million in committed capital in 2 rounds. And also, in the merchant bank, we see a lot of activity. Last year, of course, was an exceptional year, but also this year is a strong year in our merchant bank. In all niches, we see quite some activity.

Getting to the numbers. Page 9 gives you an overview of the P&L. For the first half, I will go into more detail later on, but a few things to note at this page. If you look at the line other income, that includes the book profit we made on the sale of 49% stake in VLC & Partners. That book profit amounts to EUR 16.1 million. Next to that, the line operating profit before tax of nonstrategic investments includes the book profit we made on the sale of AIO/Medsen, which accounts for EUR 36 million. And also important to note that our strategic investment program, which you can see 2 lines down, we expensed EUR 9.4 million in the first half that we have reached the EUR 60 million what was the amount that was set in 2016 for this program. The effect, also the program is coming to an end. We expect to spend only a few million in the second half. And as planned, the program will come to an end in 2019.

Getting a little bit more in detail, you can see on Page 10 the bridge between the first half 2018 and the first half of 2019. Main components is a lower commission income and a lower interest income. On the other side, we see a lower operating expenses, which the result benefits from. We saw also higher reversal of loan loss provisions, which also is a plus. And as part of this P&L, you can see the 2 large components, VLC & Partners and AIO is part of other income and other items.

Few words about cost on Page 11. Last year, of course, we saw in the first half an increase in our expenses. At that point in time, we already pointed out that part of that cost increase was temporary in nature, but also we took some measures in the second half. In the first half of 2019, we are able to report a 9% lower expense base than in the first half of 2018. The restructuring, as we announced earlier this year, is most completed, although we took a sale at EUR 2.5 million additional charge which still relates to the restructuring efforts that we announced early this year. And as Karl already said, we're on track to reach our target for this year, which has been set at EUR 390 million for the full year.

Going to the business line, which you can see on Page 12. Result at Private Banking, relatively stable, although underneath you will observe lower revenues and lower expenses, slightly lower I would say. But also, the private bank is benefiting in this period from a higher release in loan loss provisions.

Looking at Evi. Within Evi, we see slightly better revenues, but foremost lower expenses particularly marketing and IT. So you see step by step the negative result of Evi is decreasing.

Asset Management, relatively stable, slightly better result for the first half 2019, also driven by somewhat lower revenues but also lower expenses.

The merchant bank, as already said, last year was a very exceptional year. This year, still a strong year, but we see it at a somewhat slower pace. And also within the merchant bank, we see that specific activity called structured products is delivering somewhat lower results than last year.

Taking a closer look at the private bank. What's happening in the private bank on Page 13, we see that within the private bank, client assets are up by 8% mainly as a result of market performance in the first half. But we see on the back of, say, volatile markets in the fourth quarter 2018, we observed that clients are more reluctant, hesitant to invest. So we see in the first half, still an inflow in the private bank. But net-net, that translates in an increase of the amount of sales and deposits and small outflow from the AuM base within the private bank. So that's what you see in the picture on the right-hand side. On the left-hand side, you see that we're next to a small outflow in AuM. We see EUR 400 million in inflow in the net savings and deposits.

I already noted, we are on track to complete our strategic investment program within the private bank, and one of the major steps that had to be taken is the launch of the payment system, which has been completed now.

Moving to Asset Management. Within Asset Management, as already announced earlier, we expect that the large mandate from Pensioenfonds PostNL that has materialized in April and resulted in an inflow of EUR 9 billion. Next to that, we see a small outflow in our funds/strategies. To some extent, that's self-inflicted because we decided to move our European mid-cap product from Edinburgh to Amsterdam, so that resulted in a modest small outflow. It's good to know that within the asset manager, we look back at the 2 successful product launches: I already mentioned the European private equity fund; also we launched a global infrastructure fund. And if we look at the pipeline, the pipeline is good. In particular, we see good traction at this point in time in credit and in our global small-cap product.

Looking at the margins. That's always a question that's being raised, how about the margins? We show that on Page 15. But in Private Banking, it's slightly lower but predominantly as a result of lower transaction activities from our clients. So you can argue that within the private bank, margins are still resilient. Asset Management, different story, but there, the margin decreases mainly because of the mix effect. Of course, the fiduciary management mandates go at a lower fee, so the average fee in the first half comes down in particular as a result of the addition of the mandate of PostNL.

Going to Evi. Evi results improved in the first half mainly as a result of lower expenses. On this page, you can see the further developments of Evi. On the right-hand side, you see the overall client assets of Evi add up to EUR 1.5 billion, of which EUR 950 million is in AuM and some EUR 600 million is in savings and deposits, both in The Netherlands and in Belgium.

Talking about Evi on Page 17, a few words about the new space that we observe for Evi. Looking back with Evi, we have built a strong brand and a very broad and attractive client base. For further growth, we would like to focus more on the mass affluent market. We observed in that market that there is a need for wealth management advice. These clients or this prospects observe, of course, low interest or no interest on the savings account. There's, in our country, quite a bit of uncertainty these days on pensions. So we think that with our online wealth management services that we have, we could cater to particularly this market segment. And moreover, since within the private bank, as part of our strategic investment program over the last few years, we have made a number of investments that are delivering tooling geared towards these issues. We think that also with a stronger cooperation with the private bank, we should be able to also have the Evi clients and Evi prospects benefiting from that. So all in all, we expect with this focused strategy to pick up growth but also to seek for cost synergies between Evi and the private bank.

A few words about the merchant bank on Page 18. A lot of transactions, again in the first half, you see that commission income is slightly down compared to the first half of -- in fact the first half was quite exceptional. And as already noted, in particular, we see in the first half some lower results from structured products within the merchant bank.

Taking a look at the interest environment. The margin pressure continues. We see that low interest environment is still there. However, our interest income is more or less in line with the second half of 2018, but it's lower in the first half of 2018. What we see is that, in particular, in our investment and liquidity book, returns are under pressure. Also, the corporate bank runoff plays a role. That's being offset in part by healthy net production mortgages which we can, at this point in time, put in the market at relatively stable margins. However, the graph on the right-hand side I think tells it all.

Talking about the loan portfolio on Page 20. There you see that our overall portfolio is relatively stable. As already said, our mortgage book but also the book of other Private Banking loans is increasing. At the same time, the runoff of the corporate bank continues. In the first half, a decline of 24%, and the book is now below EUR 400 million, so still working on the runoff of the corporate bank as planned.

And moving to income from securities and associates on Page 21. This line includes the portfolio as we have in our participation/private equity investments that in part being managed via the Bolster Fund. It also includes the co-investments we do in our own products. Overall, we see a healthy performance on these investments. Of course, this line also includes the book profit we made on Van Lanschot Chabot at EUR 16 million. And also, I'd like to note what is in our press release today as well, that in July we sold our stake in a company called, Marfo which will result in a capital gain of EUR 6 million, which will be recorded in the second half of the year.

Then moving to our results on financial transactions, which is somewhat of a mixed bag, I would say. We see there are lower results compared to last year. That is the result of the fact that we have less sales from our investment portfolio to begin with. Next to that, also part of this item is the hedges that are linked to our co-investment portfolio, which you saw on the previous page. Flip side of that is on this side so part of the positive results on the one side is the negative side you will see over here. And next to that, we had to deal with a model adjustment in one of the models we use for the valuation of our structured products, and we had to take a valuation adjustment in one of the contracts we have in our (inaudible).

Moving to loan loss provisions. Again, a net release of loan-loss provisions, in particular also in the corporate bank, and in part also in the private bank. So we see that our loan portfolio now is EUR 8.9 billion, out of which 73% is mortgages, so the mortgage part gets relatively larger. But now for the fifth half year in a row, we're able to show a net release of loan-loss provisions, which basically indicates the good economy and the housing market in The Netherlands.

Our capital position, on Page 24, moving up from 21.4% to 22.7%, further strengthening on the back of the goodwill that disappeared that was related to our AIO/Medsen stake. Also, we see lower charges from market risk, corporate bank book, further runoff, so that results in a very strong capital position. And as you can see on the right-hand side, we -- with the proposed capital return of EUR 1.50 per share that we propose now, the total amount that has been paid to shareholders since 2016 adds up to EUR 331 million, which is roughly EUR 8 per share.

We stick to our policy to optimize our capital base, and we also note that we would like to leave room for possible acquisitions. And now you see that, also, we are able to combine that with paying out excess capital to our shareholders, which, of course, is subject to approval by the regulator.

Our financial targets on Page 25. Well, the capital ratio is, of course, well above our own targets. Dividend is something we don't discuss today because that's part of the annual process. Our Efficiency ratio, for which we have set a target of 70% to 72% accounts for 75.5% in the first half. Of course, this includes also the book profit on VLC & Partners, which I think it is slightly better than last year. And the Common Equity Tier 1 ratio is, for the first half, 12.9% if we would annualize it.

Just to complete. I think given market circumstances, we're happy with our results for the first half. We've made a number of important strategic steps, which also prepare ourselves for the future. So looking back, healthy results and important to stay on track with respect to our strategy.

That's where I want to leave it.

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Ingrid Rombouts, Van Lanschot Kempen N.V. - IR [5]

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And then we would like to hand over to the operator because it's time for Q&A.

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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. Benoit Petrarque, Kepler.

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Benoit Petrarque, Kepler Cheuvreux, Research Division - Head of Benelux Equity Research [2]

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Couple of questions on my side. Now the first one is on growth, so clearly, challenging inflows this half year. Could you again summarize what are the main initiatives taken to stimulate growth? I mean you've been talking about Evi but also on the kind of Asset Management and more traditional Private Banking, can we actually expect a bit of growth? Or are you confident with your strategy to stimulate growth? Or do you think in the current environment, we should -- it's going to be very hard to actually bring new clients, increase market share and bring more AUMs on the platform? That was the first question.

Second question is on costs. So 390 -- sorry, EUR 180 million in H1 versus EUR 390 million full year, so it seems that you are well ahead for the remaining of the year. So why do you keep your EUR 390 million actually? Do you expect significant inflation somewhere else in H2? Add in mind that regulatory costs will be much lower in H2, so H2 should be easier to, in terms of figure, reverse in H1 till you keep your EUR 390 million target. So I was wondering why.

Then on the strategic investments so that was top end of this year, do you have in mind a new strategic investment? And if not, all the IT change cost will move because I think today, in the cost basis, a relatively small amount of IT change cost. But do you think that going forward, your IT base will be higher on your OpEx versus the levels you have seen in the past years?

And then maybe the last one is on your sensitivity to the equity market. Could you update us a little bit in terms of the mix you have on the AUMs? It's a long time we've not been talking about that. But thinking about maybe a tougher market going forward, what will be your sensitivity on the AUMs to a drop of, say, 10% of the equity market? Could you give us a little bit of guidance on that?

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [3]

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Okay. Benoit, thanks for your questions. Starting with the first one on terms of growth and stimulating inflows. You already referred to Evi where I think we have set a path to accelerate growth. Within the private bank, yes, we're doing everything at this point in time to also have clients stimulate to basically invest, but at the same time, we also appreciate the fact that clients are sensitive to market sentiment. So that makes it a somewhat challenging environment. But at the same time, we feel that with the increased uncertainty, our approach with personal advice and with helping clients in the trade-off I think eventually will pay off. But as you see in the first half, there's a bit of uncertainty among our Private Banking clients, although I would say that there's not any sign of panic, et cetera, so it's more a sort of model development.

Within the asset manager, it's a mix. We, of course, see the successors of fiduciary management. At the same time, we would like to have the ambition also to grow on the, what I would call, the strategy part, the fund part, the niche part. Because, of course, in terms of margin, that is a very attractive business. So what we're doing there is a couple of things. First of all, we have new product launches that I referred to infrastructure, private equity, so we do that. Also, we are seeking more efforts in distribution also outside The Netherlands. So for instance, we have a few distribution agreements now in Germany. And also, we're looking for further distribution outside current markets to stimulate also the growth in that part of the Asset Management. So we focus in expanding the geographical footprint that we have over there.

Your second question with respect to cost. Yes, well, we stick to the target that we set. I would like to note that in the first half, a lot of the efforts went to, let's say, the things that are part of the strategic investment program. So maybe that also resulted in a bit slower pace in the regular expenses. And you might expect that there might be some catching up in the second half. So there, I think we are firm on the fact that the EUR 390 million is the target. We feel comfortable about that, but it's hard to predict exactly how it will play out in the second half.

We have no plans for a new strategic investment program now. As we said, it will run off in 2019. We are on track, and it will run off in the coming months. That in itself will result in the fact that all IT exchange cost will be part of our regular expenses as of next year. However, of course, if you look back to the strategic investment program, it included 2 major outsourcing projects, which will -- which have come to an end now. So from that perspective, we think still that the regular IT change that allows for reasonable level of IT change cost on year-on-year, so we're comfortable that it can be part of that.

Sensitivity on equity markets, as we have indicated I think in the past, it's rough numbers. But in the private bank, some 60% of the -- 50%, 60% of the assets under management are equity related. In the asset manager, it's more 30%. So that gives you a sense of what part of the AuM base is linked to equity. Also, note that, as we also put on the slides, if you look at the basis of fiduciary management, we're also talking there about fixed fees, so fees that are not linked to AuM levels in itself.

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Operator [4]

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The next question is from Mr. Cor Kluis, ABN.

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Cor Kluis, ABN AMRO Bank N.V., Research Division - Analyst [5]

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Cor Kluis, ABN AMRO. I've got a couple of questions. First of all, on the cost side. Your surprise positively there and is clear what the full year guidance still is, but going forward, with a more flexible and basically the lower cost base that you definitely restructured to, do you believe that it can be somewhat flattish going forward? Or can you give some idea on, yes, what we could expect on that side?

And then on the capital, the special capital returns, great to see that this is already the third year that you do this, giving around, which you [dividend] around 70% of total return. We don't see that often. Can we kind of read through towards acquisitions because for you as management, of course, where do you allocate the capital to acquisition opportunities and special capital return, you've chosen to add the EUR 61 million for this one. Is there some read-through that at this moment you cannot find acquisitions with attractive return for Lanschot (inaudible). You've always been disciplined in that respect. Is that an indication? Or yes, can we not read through that towards acquisition opportunities? Can you give an update on the M&A like you've done also a little bit more at the full year results?

And last question is about mortgages and margins. Mortgages have been developing quite nicely in The Netherlands. You've seen year-to-date 3% growth in your mortgage share book. Is there a possibility or, yes, or willingness to increase the mortgage book in a little bit of an accelerated pace? We don't know how long these margins will remain at the current levels, but either you have the capacity or, yes, to boost the book a little bit further because it might help on the NII, of course, and it's also good to see probably for the company. Those are my questions.

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [6]

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Thank you. The first 2, I'll take. And the third one will be taken by Constant. In terms of cost development, I think the short answer is we reiterate our guidance for the full year. And yes, I mean, I think it goes without saying that we'll continue to focus on cost as we have and it's necessary to do so and we will continue to do so.

In terms of the future, yes, we've avoided making any sort of forward-looking statements, and I'm not going to get into that, other than to sort of reassure you and the others that cost remains an absolute priority in how we drive our businesses and what we do.

The second question with respect to capital return, I think we have stuck to the promise we made, and we've been disciplined about it in terms of making sure both the combination of dividend and capital return, it remains an attractive proposition for investors and shareholders.

And the guidance that you're seeking in terms of acquisition in the future, we've always been very, very disciplined about capital. It's very easy to throw money around and buy something. We have seen evidence of that, including in your own house. But we just want to be very, very, sort of, be very disciplined about it. And I think beyond that, I think it's very dangerous for us to say anything, so therefore, we're not going to go into that. But I reiterate again that capital discipline remains, has been always a feature of what we do and will remain so in the future. Mortgages, that will be taken on by Constant.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board [7]

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Yes. You're right, so mortgages, well, at some point, it also a little bit offsets what we're suffering for in NII. So that's also what we observe. Margins are good. At the same time, it is an integrated part of our strategy, but also, we stick to the specific target hopefully we have identified for this product. So your question about increasing it and doing it at a higher pace, we're willing to do so. We have also the capacity to do so. But at the same time, we would like to stick to our strategy, and that means that we focus with our mortgage offering to the target group we have. And within that target group, we see that in the first half we were able to do more. So net-net, we were able to have an increase of our mortgage book. But to start outside that group, I think that's not something we would like to do.

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Operator [8]

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(Operator Instructions) The next question is from Mr. Albert Ploegh, ING.

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Albert Ploegh, ING Groep N.V., Research Division - Research Analyst [9]

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A couple. Maybe first one on Evi, the next phase. How should I see that in terms of marketing of Evi because, yes, will you make any changes there? Or should we also anticipate, let's say, a bigger push, which may also explain that you're also think the cost base might still be a little bit higher? So are you changing your [market] approach? Or will you more use other ways than TV ads or more internet-based? Anything there I would appreciate.

Then on the net interest income, I hear what you say. And then probably, the expectation indeed is there will be more easing coming from the ECB soon. As far as I know, you're already charging something like 40 basis point negative rates with clients having more than EUR 2.5 million. So yes, are you basically anticipating to pass on further of these negative rates to clients? Or how will you navigate with that, and is that also partly embedded in your statements on NII with further headwinds as a result? And let's say, on the investment part, or let's say, on the deposit margin book, yes, what kind of pressure should we factor in? I don't know if you can you give somewhat guidance there. I know one bank was pretty specific on that, but I thought it was quite an exception. But anything, that would be helpful.

And maybe finally, on, let's say, on the Know-Your-Customer or Anti-Money Laundering. I mean you clearly not made already quite -- no specific comments on that and I know (inaudible) in terms of the other banks, but let's say, I do assume there will be, of course, somewhat focus on that from the regulator as well. But is it fair to assume that, let's say, all costs related to those programs are already reflected in your current running cost base and we should not expect anything new from that coming?

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [10]

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The third question, could you repeat that a little bit?

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Albert Ploegh, ING Groep N.V., Research Division - Research Analyst [11]

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No. Yes. I mean on the KYC and ALM (sic) [AML], so do we need to expect some special one-off costs related to those programs? Or is it all in the running cost base as we see it because you're clearly a little bit different in terms both, you've not made any specific comments on that.

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [12]

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But it's more like, our neighbors, are we going to increase the cost base.

Albert, I'll take the first question, and the second and third will be taken by Constant. The first one, Evi next phase, I think in reality what we are doing is making sure as we've always said to bring the cost down. And I think, and in fact, you do see that effect. What we're also doing is basically making and ensuring that we go onto the next phase of Evi. So the Evi, from our perspective, from a branding and positioning perspective, I think what we wanted to achieve, we have achieved that. So the focus is very much is still -- so I think Evi, let me put it this way, remains open for everyone, but the focus is much more towards the mass affluent. And yes, mass affluent is sort of the thing, it depends on the eye of the beholder. But for us, it essentially means those are tens of thousands of disposable savings or income to be able to invest in whether in equities or bonds or other similar investment categories.

And in that, we're also combining some of that with, if you will, the residual part of a similar mass affluent portfolio that currently sits in the private bank. And we will also combine, if you will, the back office platforms, so that also takes the cost down. So the focus is going to be, in a nutshell, the focus is going to be on mass affluent. And at the back end of it, we will seek to optimize on the same platform as the private bank, so that brings the cost down. And the third element of it is we will continue to drive the products along those 3 categories of pension, investments and savings. But at the back end of it, as you know, we drive a consolidated wealth management proposition. So i.e., at the very top of that firm, whether it's a private or institutional or mass affluent, is driven by the same group. So I think we're trying to leverage effectively what we have and bring it to fruition on the revenue side as well as on the cost side. So that's on Evi.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board [13]

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Okay. With respect to NII, yes, we, of course, are very curious to see what the ECB is going to do next month. At this point in time, to be specific, we charged 20 basis points for clients with savings amounts in excess of EUR 2.5 million and it gets minus 40 basis point above EUR 5 million. So that's what we currently are charging our clients. Difficult to say how we navigate going forward. I would say that, first of all, you would like to see what the ECB is going to do in September. Of course, the big question is whether there will be any compensation efforts vis-à-vis the banks with respect to savings money or otherwise, so we have to see. We keep our investment book at a relatively short term. So of course, we see that what's happening particularly in the last 5, 6 weeks is not helping there. So yes, we are watching this carefully, but no specific plans in this respect vis-à-vis clients right now.

With respect to KYC, of course, an important point for all banks, so it is for us. So we are very much focused on this.

As we indicated, of course, we are, [the UN] indicated, as we are, of course, a more focused bank that helps also to focus the efforts in this respect. And we have done so over the last few years in terms of doing the things we have to do according to the (inaudible). We'll keep doing that. No specific expenses on that. But of course, it's part of our normal expense. And given, let's say, the focus and the effort on this is; this will, of course, be part of the expense base, and our expectation is that this fee will stay and will intensify over the coming years, but no specific comments to be made in terms of expenses right now.

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Albert Ploegh, ING Groep N.V., Research Division - Research Analyst [14]

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Okay. Maybe if I can, one follow-up on the capital situation. I know your balance sheet is quite straightforward. But do you, yes, should we anticipate any, let's say, model add-ons or let's say push for early phase-in on capital? I know your capital position's absolutely no issue. But your RWAs are trending down nicely. But do you -- should we anticipate, let's say, something down the road in terms of current regulation that might be result in some add-ons to be a bit more prudent from the DNB side?

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board [15]

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Well, we're not part of the trim exercises that take place at the large banks. As we've indicated early on is that we expect a relatively modest impact from Basel IV, [RWA] inflation of not more than 10%. That's basically all I have to say about this now.

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [16]

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We're not actually worried about this.

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Operator [17]

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(Operator Instructions) Next question is from Mr. (inaudible), Kepler.

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Unidentified Analyst, [18]

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Just to follow-up on Albert's question on the negative interest rates you're charging your clients. What has been so far the reaction of these clients? Do they move funds more into real estate, or outside your bank or into equity?

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [19]

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Yes. No specific reactions. I think clients understand it. So it's, of course, also the personal relationship we have with clients helps to explain what we're doing and why we're doing, and then no specific movements to be observed. Of course, our top of client, they invest in real estate all the time that's, of course, the new national hobby here but no specific movements there.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. - CFO, Chief Risk Officer & Member of the Executive Board [20]

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I think the issue is, well, if you move it down to -- at a basic level way below those numbers, then we don't know. I mean that's something that remains to be seen. So somebody with EUR 0.5 million in investments or savings in cash, that we don't know. We can only speak for what our own experience is.

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Operator [21]

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There are no further questions at this moment.

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Ingrid Rombouts, Van Lanschot Kempen N.V. - IR [22]

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Okay, then I would like to thank everyone for participating in the call. If you have any further questions, please reach out to us, and please note that this call was recorded and can be played back via our website, vanlanschotkempen.com, at a later date. Thank you.

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Karl K. Guha, Van Lanschot Kempen N.V. - Chairman of the Executive Board [23]

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Thanks very much.

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Operator [24]

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Ladies and gentlemen, this concludes the conference call. You may now disconnect your line. Thank you for joining, and have a very nice day.