ABN Amro: Increase FVE by 24% to Reflect Potential for Share Buybacks

We have updated our earnings estimates for ABN Amro. We now expect the bank will book earnings of EUR 2.48 per share for fiscal 2023, 27% ahead of its 2022 earnings. We now forecast cumulative share buybacks of EUR 1.5 billion over the next three years. We therefore increase our fair value estimate by 24% to EUR 21 per share. The tailwind from higher interest rates is likely to subside. However, we highlight that ABN Amro's long-duration lending book and its hedging policy shield it from the prospect of lower future interest rates to a greater extent than most of its European peers. We are more bullish than the company-compiled consensus for 2023 earnings, as we expect lower loan-loss provisions than consensus. We are broadly in line with consensus earnings expectations for the following periods. ABN Amro trades at a 36% discount to our fair value estimate. At its 0.6 times current price/tangible book value ratio, it is at a 30% discount to its 10-year average multiple and a 25% discount to the average multiple of the European banks we cover. Previously we favoured the firm adopting an aggressive return of capital strategy to narrow the discount rating to peers. We are now becoming more receptive to an ABN Amro acquisition in the wealth-management space to diversify its revenue base, as it is one of the banks we cover with the most significant reliance on cyclical net interest income. An increased presence in wealth management would increase ABN Amro's fee income and bring much-needed revenue diversification.