ABN Amro's IPO could prove sweetly timed

The Pak Banker - - OPINION - Do­minic El­liott

ABN Amro, the poster child of the fi­nan­cial cri­sis, has al­most grown up. The state-owned Dutch bank on Aug. 21 re­ported a near-dou­bling of sec­ond-quar­ter earn­ings from a year ago to 600 mil­lion eu­ros ($675 mil­lion). Chief Ex­ec­u­tive Ger­rit Zalm says ABN is on track to sell up to 30 per­cent of its stock back to pri­vate in­vestors in the fourth quar­ter. Tim­ing is on his and the gov­ern­ment's side.

An en­cour­ag­ing start is ABN Amro's im­proved sec­ondquar­ter show­ing. The pro­vi­sions the bank took to cover fu­ture bad loans fell 90 per­cent year-on-year to just 34 mil­lion eu­ros, help­ing earn­ings in the first half rise strongly, and its an­nu­alised re­turn on eq­uity to hit a solid 15.3 per­cent.

It will take more than that for Dutch taxpayers to get their money back. The state na­tion­alised ABN in 2008, and has paid a to­tal of 21.7 bil­lion eu­ros for the do­mes­tic busi­ness of For­tis as well as ABN's Dutch, pri­vate bank­ing and clear­ing di­vi­sions. The gov­ern­ment has said the bank is cur­rently worth about 15 bil­lion eu­ros, just un­der its just-re­ported book value, sug­gest­ing a pa­per loss of about a third on the ini­tial share sale. To break even, the bank would need to fetch a val­u­a­tion of 1.4 times for­ward book value - higher than ri­val ING, which trades at 1.2 times. There is, how­ever, a par­al­lel with Royal Bank of Scot­land, the UK len­der put into state own­er­ship in 2007. The Bri­tish gov­ern­ment com­pleted its first sell­down in RBS shares ear­lier this month. The amount raised was sim­i­lar to the amount the Dutch state is seek­ing, and it was also about a third lower than the UK tax­payer's av­er­age in-price.

As with RBS, such num­bers aren't to­tally help­ful. Sav­ing ABN from fail­ure may have paid other less easy-to-mea­sure eco­nomic div­i­dends. The In­ter­na­tional Mon­e­tary Fund fore­casts steady growth in the Nether­lands' GDP of 1.6 per­cent for this year and next. That sug­gests now is a good time to sell. A buoy­ant hous­ing mar­ket, lower un­em­ploy­ment and im­proved con­sumer con­fi­dence are also help­ing do­mes­tic peers Rabobank and ING. ABN looks healthy, with a com­mon eq­uity Tier 1 ra­tio of 14 per­cent, and a pledge to pay 40 per­cent of earn­ings in div­i­dends. A re­turn to the mar­ket should put ABN's trou­bled past com­fort­ably be­hind it.

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