Low risk, low profile: redrawn ABN Amro prepares to re-list

Reuters - UK Focus

* ABN Amro to relist as safe, local bank

* Low-risk, dividend yield appeal to investors

* But Dutch economy, loan losses weigh on IPO prospects

* Listing likely to go ahead mid 2015 at the earliest

By Laura Noonan

AMSTERDAM, March 21 (Reuters) - As reconstructed Dutch bankABN Amro prepares to go back to the stock market, the bailed-outlender's modest new profile appears to be chiming withcrisis-hit, risk-averse investors.

ABN Amro was bought for $100 billion by Royal Bank ofScotland, Fortis (Other OTC: FRTSF - news) and Santander seven years ago but then had tobe taken over by the Dutch government during the financialcrisis. Now it is valued at just 15 billion euros ($21 billion)and its scaled-back business depends on the Netherlands for 80percent of its earnings.

Changing the marketing line from "international financialgiant" to "Dutch retail bank" was tough initially for chieffinancial officer Kees van Dijkhuizen. But the response frompotential shareholders has been telling: while around 25 peopledialled in to the bank's first investor call in summer 2011, thelast call in February had about 100 participants.

"I understood that it was actually an advantage," said vanDijkhuizen in an interview in his 21st floor office in ABN'sheadquarters, which dominate the skyline of Amsterdam'sfinancial district.

Van Dijkhuizen is preparing to return ABN to the stockmarket from next year. The bank has spent the best part of threeyears educating would-be shareholders about the bank'sconversion to a "steady as she goes" philosophy that valueslower risks over higher returns.

With many of the world's major banks still stuck paying forthe sins of the past, that's an attractive proposition forinvestors with an eye on a stable dividend.

"What you get is a low-risk bank serving the communities ofthe Netherlands, well capitalized, not planning to do anythingtoo exotic," said Christopher Wheeler, analyst at Mediobanca (MDD: MB.MDD - news) .

"People want stable yields."


The picture is not entirely rosy however. The new ABN Amrois operating in a weak Dutch economy, which was stripped of itsAAA rating by Standard & Poors in November and is expected togrow by less than the EU average in 2014 and 2015.

Provisions for loan losses dragged down earnings for bothABN and peer ING in 2013 - ABN earned 1.2 billion eurosin profit last year compared to almost 10 billion in 2007 - andprospects for loan growth look slim.

"The main downside risk is housing," said Alexandre Birry ofratings agency S&P, which downgraded the ratings of the Dutchbanks it covers in December after stripping the sovereign of itsAAA rating weeks earlier.

Nonetheless, in spite of the weak growth and low margins,ABN still managed to pay the government a 350 million eurodividend last year, representing around 30 percent of earnings,and is targeting a payout ratio of 40 percent by 2015.

"If management can sell the IPO as a solid dividend (yield)story the IPO should be doable," said Patrick Lemmens, aRotterdam-based fund manager for Robeco (LSE: 0P1G.L - news) . "Of course it's alsovery important what the size would be of the initial listing. Itshould be large enough (to guarantee liquidity) and not be toolarge (for the market to absorb)."

Lemmens suggested 3 to 5 billion euros as a potential firsttranche.

One investment banker who asked not to be named said hebelieved the flotation would be successful despite the currenteconomic slump.

"It's one of the clear winners in the market," he said. "TheNetherlands is a solid economy and this is a company with asolid position...But it doesn't have the sex appeal of anemerging economy bank".

2015 IPO

The Dutch state, which pumped 21.66 billion euros into ABN's2008 bailout, has signalled the first batch of the bank's sharescould go to private investors as soon as 2015.

In preparation, Dies Donker, ABN's head of investorrelations, and her team, have been visiting Europe's top 30 bankinvestors in Frankfurt, London and Paris since 2011. Theirefforts have been complemented by the bank's IPO office, createdin late 2013 and stewarded by Fred Bos, a 23-year veteran of thegroup who came to ABN when it was merged with the Dutchoperations of Belgian bank Fortis.

Relations between the NLFI, which manages the government'sstake, and the bank's management have been good but to avoid anypotential future confusion, negotiations are underway to map outwho will decide what when it comes to the IPO.

Bos said ABN would be consulted on key issues like how muchof the bank to sell and pricing.

Ahead of the IPO, non-core assets have been sold, whileperipheral business, including an international diamonds andjewellery office in Botswana, have been closed.

"We want to be a clear, transparent bank without a lot oflegacy issues," said Bos.

ABN needs to send a strong message - starting from nextyear, Europe's stock markets will be busy with bank listings.

Up to eight British banks could list on the London StockExchange in the next two to three years. TSB and Williams &Glynn are being sold off by Lloyds Banking Group andRoyal Bank of Scotland (LSE: RBS.L - news) respectively as a condition oftheir government bailouts during the 2008/9 financial crisis.

Santander has been considering a flotation of itsUK arm for several years, while National Australia Bank couldalso spin off its UK business. Others planning IPOs includeVirgin Money, Metro Bank, Aldermore and Shawbrook, which areamong a growing band of new British banks looking to break thedominance of the country's biggest lenders by taking advantageof government measures to stimulate competition.

Mid 2015 is the earliest practical time for ABN's IPO - thebank wants to wait for the results in late 2014 of an EU-widesector health check to decide when to begin the process ofhiring advisors and drawing up a prospectus.

Van Dijkhuizen would not be drawn on when the bank wouldrelist but said it would take stock in the third quarter of 2014and give its recommendation to the finance minister.

He did say that investment banks were circling, but so farnone has snared what will be one of the biggest IPO mandates inEuropean financials.

"A lot of people are interested in us at the moment," saidvan Dijkhuizen. "We love to talk with them - we get a lot offree advice." ($1 = 0.7188 Euros) (Additional reporting by Freya Berry and Matt Scuffham inLondon and Carmel Crimmins in Dublin; Editing by Sophie Walker)

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