Price to book

The book value is $25/share based on $24B total equity. The PB ratio 0.6 is historical low and justifies a continued shares buyback until a minimal PB ratio of 0.8. This would result in a share price of €20.

The shares buyback is subject to minimal capital requirements and regulatory approval. The bank aims to lower Risk-Weighted-Assets add-on's and Basel IV capital requirements. Under profitable market conditions future share buyback programs can be expected.

PE multiple-expansion

ABN currently has a low price-to-earnings ratio of 6x forward looking earning of €2B (€2.3/share). The valuation is 20% lower than industry average (7.6x) and its historical valuation. A recovery of the PE multiple supports a target price of $17.50 (with a safety margin from €500M share buyback in 2024).

Net interest income

NII developed strongly in 2022/2023 and NII is expected to be flat in 2024. Positive drivers are growth in Wealth management deposits and increased market share in Commercial banking. Net interest margin is expected to be under pressure from competition. Also clients improve allocations at the cost of net interest margin and NII.

OPERATIONAL costs

Management indicated a cost level of €5.3B for 2024. This could be too positive the cost level was almost €1.4B in Q4'23 (excl. incidental). Q4'23 shows a significant $130M increase in Other expenses. Since management earlier cancelled a cost savings target there is a risk for lack of cost control.

ABN had a cost saving target for 2024 of €4.7B, which has been cancelled under 2023.

Regulatory efforts on compliance (for AML), model development and (model) data quality are high and driving costs. In the short term 1-2 years I do not expect much cost savings.

Cost control will be an important factor to support the share price in the coming years.

On the 2023Q3 conference the CEO gave very good answers, the CFO answers could in some cases have been improved. In gereneral they seem like a good management team.

Results OVERVIEW

ABN has delivered a solid performance in the past years. In the current economic climate the conditions are positive for a continued solid performance.

Additional bank taxes

New bank tax regulations could reduce net-income after tax. For now I consider the risk to be low.

Economic downturn

In an economic downturn banks increase reservation based reserve and risk management policies. This would have a negative impact on the net income, also when losses do not materialize.

In 2024 the target is lowered to 15-20bps (20bps) through the cycle.

Cost of risks are at low levels at the moment. The bank has a 60% management overlay given the geopolitical uncertainties.

Although bankruptcy is rising from very low Post-COVID levels, I do not expect a direct increase in impairment costs.