S&P revises outlook on ABN AMRO to negative from stable

Maria Nikolova

S&P notes that ABN AMRO is set to incur about €180 million in net loss related to its clearing activities as part of its first-quarter results.

S&P Global Ratings has taken rating action regarding Dutch-based ABN AMRO Bank N.V.

S&P notes ABN AMRO’s announcement from late March 2020 that it will register about €180 million in net loss related to its clearing activities as part of its first-quarter results. Due to the high volatility of the financial markets at the end of March 2020, ABN AMRO announced that it closed the positions of one of its clearing clients, resulting a $250 million pretax loss. The client had a specific strategy, trading US options and futures, and failed to meet the minimum risk and margin requirements following extreme stress and dislocations in US markets. In order to prevent further losses, ABN AMRO Clearing decided to close-out the positions of this client.

According to S&P, “this tail-risk event in a traditionally low-risk business activity, with a good track record of both operational and credit risk management, brings into question ABN AMRO’s risk tolerance framework”.

S&P also expects the bank’s impairment charges to rise in 2020 due to its exposure to some cyclical corporate sectors, and other sectors, which are under more stress due to the COVID-19 pandemic.

This comes at a time where ABN AMRO is engaged in a vast and costly overhaul of its customer due diligence processes, and subject to an investigation from the Dutch public prosecutor, with an uncertain outcome.

“We believe this combination of events will likely erode the bank’s earnings and affect its relatively robust financial profile, so we are revising the outlook on ABN AMRO to negative from stable”, S&P says.

The rating agency is also affirming its ‘A/A-1’ long- and short-term issuer credit ratings on the bank.

S&P says it would revise the outlook to stable if ABN AMRO manages to contain credit risk stemming from its exposure to cyclical corporate sectors and other customer lending areas, while preserving its core franchise and a sound risk profile in other segments like private banking, asset management, and clearing activities.

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