ABN Amro Earnings: Substantially Ahead of Consensus Expectations; Growth Path Becoming Less Evident

Narrow moat ABN Amro reported earnings per share of EUR 0.98 for the first quarter of 2023, double the EUR 0.50 per share recorded a year earlier and materially ahead of the EUR 0.63 per share company-compiled consensus estimate. Higher fair value adjustments on the other income line and the release of some unused COVID-19 loan loss provisions were the main drivers of earnings coming in ahead of consensus expectations; some investors will view this as a low-quality earnings beat. Expanding net interest margins continued to be the primary driver of year-on-year growth, but quarter-on-quarter net interest income was stable, confirming that margin expansion has peaked. The third quarter will be the last quarter that ABN Amro will benefit from a softer base due to depressed net interest margins. The path for revenue growth is less evident from the fourth quarter onward. Credit quality remains sound with stable nonperforming loans. Dutch housing prices are holding up, while Dutch bankruptcies stay well below historical levels. Inflationary cost pressure is starting to bite, and ABN Amro no longer expects to meet its EUR 4.7 billion 2024 operating expense target. ABN Amro indicated that it will update the market on future share buybacks at the fourth-quarter results presentation early next year. We believe ABN Amro has significant excess capital, and it is disappointing that it will take so long to update the market. Our fair value estimate is EUR 19 per share.