ABN AMRO Q2 2007 Earnings Call Transcript

Jul.30.07 | About: ABN Amro (ABN)
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ABN AMRO Holdings N.V. (ABN)

Q2 2007 Earnings Call

July 30, 2007, 3:00 PM CET

Executives

Rijkman W. Groenink - Chairman of the Managing Board

Huibert G. Boumeester - CFO, Member of the Managing Board

Analysts

Stuart Graham - Merrill Lynch

Arturo De Frias - Dresdner Kleinwort

Jean-Pierre Lambert - Keefe, Bruyette & Woods

Ralf Breuer - WestLB AG

Presentation

Operator

[Call Starts Abruptly]

… Of course we have adjusted a number of items that you can see, footnoted on the bottom of the page, is actually 14.3%, which has been driven by increase in operating income in all BUs.

We have of course seen a strong underlying performance in the BU Global Markets. We had also seen on a reported basis expenses of up 14%, but when adjusted at 8.6%, of course, leading to well below cost growth relative to revenues leading to very significant increases in reported operating result of 9.1%, but particularly up 29.1% in terms of the adjusted operating result. That again, in turn that leads to a 3.6 percentage points improvement in the adjusted efficiency ratio to 68.5% for the first half. That, in turn of course leads to a reported profit, which is marginally down at 1.4%, but on an adjusted basis is up by 13.4% to €2.39 billion. And that is despite higher taxes and loan loss impairments, and a result obviously some of the BUs I had already alluded to, but also Asia, Latin America and Europe and we see indeed that the Markets business unit has led the further driving of increased operating profits significantly.

That’s where I would like to start… sort finish the first summary of the results. Of course there is a comparison that we have made core Q-on-Q, but we remain as we have said, well on track to beat the 2007 EPS target of €2.3 on an adjusted basis. We do that from a position of capital strength, 6.12% core tier 1 and 8.17% tier 1 ratio, and therefore we feel in the right combination of caution and of course, reflecting the improved earnings that we are able to pay a dividend of €0.58 which is up 5.5%. So far, the general sort of statement on the first half result.

The next slide shows that’s depicted, and I am happy to come back to this EPS discussion should you want to. But it is clear from these numbers that we are well positioned to deliver on the EPS basis.

If you look at the adjusted revenue growth by 14.3%, which has been driven by higher revenues in all Bus, of course, you can see with the exclusion of course of our Group Functions BU, contributions from all Bus, albeit that some BUs have seen a marked improvement in terms of revenue growth. Notable as I said earlier are the business unit Europe, Latin America and Asia. And if you look at the light yellow boxes, you can see that contribution and growth in contribution from the Global Marketss set of products is quite significant as well, supported by robust growth for global clients.

Are our costs under control? We would say yes, because the adjusted expenses excluding bonus accruals are up by only 1.5% year-on-year. This, in our view is a result of cost measures we have taken in 2006, and further savings from services.

If you look at the adjusted operating result that flows through from all of this, you can see that the picture is slightly more mixed, but generally on the same trend line for the different BUs. Antonveneta has not quite been able to keep up its operating results but all the other BUs have been able to, barring Group Functions.

The efficiency ratio improvement, we would say is therefore rather dramatic with the 3.6 improvement in the efficiency ratio, a very solid results delivered, as I said earlier based on our measures taken in 2006, and our efforts on the services side. If you translate that to the adjusted efficiency ratios by BU, it translates therefore in improved efficiency ratios in almost all BUs, some by significant margin as you can see in the business unit Europe and also in the business Europe… business unit, excuse me, North America.

Provisioning, I think is well it's within the expectations generally. Provisions growth has been there on the Netherlands as a result of some Corporate Provisions we have taken. Hardly, any Provisions in the portfolio of Europe. Some Provisions in Antonveneta, but then I will come back to that as to what that means for the rest of the year. And basically, we see all the significant growth for Provisions in the business units that are subject and leaders of growth namely, the business unit Latin America and the business unit Asia, both representing Provisions that accumulated as a result of very significant growth of the balance sheet. And all of this means that on a temporary basis our group ROE is below 20%. However, our return on assigned risk capital of all our operating BUs… almost all I should say barring Antonveneta is about 20%, by a significant margin in certain cases. Also our Global Clients unit has enable to achieve for the first time return on assigned risk capital which is above 20% at 22%.

We have shared with you our designs and deliverables for 2007 at the publication of the annual results for ’06, and indicated how we were going to go about it even earlier. Very much based on improving our operating performance, increasing focus and capital discipline.

On the growth side, I would like to share with you, for instance some numbers on our total retail loans growth. You might notice that there has been significant and continuous growth in that area since the early part of '04. The retail growth over the period… over one year period is 31.2%. This is still down, I think it's very appropriate risk levels and risk costs. Expenses are up, but by no means at the same level which has led to improvement in our efficiency ratio in Latin America which is 95%; Brazil was, as I am sure you are all aware, we are approaching the same performance as our pees.

In BU Asia, we have seen strong operating income increases by 38%. We have started to drive our whole focus on selected markets, India, Greater China, UAE, Indonesia and Pakistan. You have seen us making some minor acquisitions in both Pakistan and Indonesia. And, those are in progress of being prepared for integration. In June, we also received approval to go local and to build our bank further in China proper.

Antonveneta has been a cause of some disappointment to us, particularly in the growth of operating income, as you can see at the level of 1.9%. It does not fully reflect both the conditions in the Italian marketplace, and our aspirations for Antonveneta. We have made significant further investments in the client base, and we have also taken other actions to attract new customers.

If you look at that, we have to, of course, say that it is uncertain whether Antonveneta will continue to meet its €500 million target as profit for the period on a standalone basis. But we certainly are confident that this will be higher than the profit for the period in '06, which was €413 million. We have undertaken significant initiatives, and therefore do expect that profit to pick up. But it hasn’t picked up as quickly as we had hoped in Antonveneta.

On the efficiency side, you can see that the primary BUs, where we were focusing on efficiency apart from the BU Europe, the BU NL and the BU North America, we have seen that the BU NL is on track to deliver improvement of the efficiency ratio of 7. We've seen a good improvement of operating income in the first half. Good volume growth in commercial loans. However some lower margins, and we've also seen some good cost control and we've seen some additional benefits from the services savings, leading to an efficiency ratio of 65.6 for the first half of '07. That’s quite a ways since… where we were of course at the beginning of 2001.

If you look at the movement in efficiency ratio with LaSalle, there we also saw operating income up, at constant FX rates; of course the US dollar has gone down a bit. We saw the operating expenses up. Of course we have made some higher bonus accruals to pay for performance, and costs up by 5.2%, which has allowed us to benefit some already from the successful execution of cost measures. And you might have noticed that we have executed our 5% headcount reduction during the course of the first two quarters of this year.

Finally, as part of our plan, we wanted to accelerate our steps to make sure that BU Europe reached profitability in 2007. We have taken… had taken and have taken certain actions to make sure that this would happen. Significant cost control, FTE reduction and service initiatives helped us. We also made sure that we pushed ahead on the shifting client mix with a further focus on financial institutions, which has led to a very significant increase in revenues for the BU Europe, which combined with the cost measures we've taken has now led to a profitable unit delivering for the period €243 million.

We've also seen similarly over the last three years, in the efficiency ratio of the BU Global Markets. Global Markets were able to record revenues at levels, which we have not seen before, and driven really by momentum across the franchise. Growth has been, and will continue to be supported by tight ongoing cost control. And as a consequence of all of this, on a like-for-like basis, profit for the period increased by 76.3% to €730 million in the first half of '07, a significant improvement both in profitability, efficiency ratio and capital returns.

Global Clients, we had said that Global Clients needed to transition itself to making better use of its capital, restricting its excess to capital and seeing more fees and commissions as revenue base; revenues did increase by 29.4% to €1.5 billion in the first half of '07. We also saw an increase in revenues on the back of strong ECM/M&A results and the sale of non-capital intensive Global Markets products. That has led to a significant improvement of the efficiency ratio and finally, a very solid return on assigned risk capital.

Focus, over the last four years, or five years, I should say, since 2001, we have divested ourselves of a significant number, approximately 40 subscale and non-core assets. Of course you are very familiar with a number of them. LeasePlan, Bouwfonds, US mortgages. We continue to divest smaller units from within business units, such as our private client activities in Miami and our 50% stake in the joint venture with ABN AMRO Mellon, which will only be reflected in the third quarter numbers.

We've obviously also, after a long consideration, and we're taking opportune use of price and moment to dispose off LaSalle, and reduced out footprint. Combined with this, we had over the last couple of years made selective acquisitions, and we have an ongoing commitment to manage our capital tightly, and this will lead to a few very small portfolio disposals, but we have no intentions of making major disposal at the current time.

I already alluded to the strict capital discipline. You can see that we've currently managed it in terms of both growth and results to a core tier 1 ratio which is well in line with our year-end targets of 6% and 8%. We've also been able to manage our risk weighted assets to the extent of staying just below €300 billion at €294 billion.

All of this leads us to a situation where we are well on track to deliver an EPS of €2.3 in the full year. Certainly with an adjusted EPS of €1.26 in half one, we should be in a good position to achieve that. Of course there is some uncertainty in the second half of this year. And we feel however that even in that uncertainty, we will be able to deliver on our EPS target of €2.3.

This is where I hand over to you.

Unidentified Company Representative

Thank you very much. I'll just follow up with the… to cover the second part, the second press release which we gave this morning on the merger situation, and start with a short review of, from where we come from. And of course, all our strategic analysis and exercises have been based on the vision which we have developed over the years for ABN AMRO. The ambition to be a leading European based bank, sustainable market positions in growth markets, particularly in Brazil, Asia and Italy, and focusing ourselves as a client led organization on the needs of our, particularly our mid-market, consumer and commercial clients on the basis of managing for value or creating value for our shareholders with ambitious targets in terms of beating our peers in terms of efficiency growth and capital management.

Now, over the years, the way how to reach those goals have evolved. Now of course, organic growth has always been a part of our package. Also, acquisitions have been part of the game. We have, for years explored the possibilities on merger of equals. We kept in reserve a merger of… a merger in which we would be a junior partner, and at the bottom of the list of course, being acquired. Now, in the course 2006, we have come to the conclusion that we should expand our review to also include a merger, as a junior partner in the merger, and to that end, we intensified our talks with a number of potential parties. In Europe, next to reviewing the options of a merger, we continued to review alternatives like a standalone case, or a breakup of the bank. We assessed those alternatives versus the merger. We came to the conclusion that a merger in which we'll be a junior partner would meet most of our visionary requirements, and that it would be better than the standalone scenario, than… as we are presently working on that.

We announced the merger with Barclays on the 23rd of April. Rationale for that merger, you will find on the next page. I'm sorry, I'm a little slow in turning the pages. What are the opportunities from the merger with Barclays? It's a significant opportunity to accelerate our strategy for growth in the growth markets. It creates better opportunities to serve our customers, broader market probably create better deals for cash [ph], asset management and capital markets. And also the financial metrics of the deal, the equity store is very good. Very strong coast synergies and very high opportunities for revenue synergies going forward, and of course it’s highly… in spite of the fact that we can also show high cost synergies, it's highly, the combination is compatible with each other and complementary.

The board’s decision was very clear on the 23rd of April. We combined it with the sale of LaSalle, which was an opportunity arising in the last four days of our negotiations. And why did we take this opportunity? Just to repeat it again, we took that opportunity because it sets the value of LaSalle, and it sets… it set that part of the deal and it helped us to extract a higher offer from Barclays with something like €2. Interesting enough of course also subsequently when the Consortium came in for the bid, they had to base themselves from the bid already out by Barclays. So the sale of LaSalle also originally helped immediately to put in a higher number from the Consortium.

As I said, we reviewed the standalone options both on a standalone basis and a managed breakup analysis on the 22nd of April, together with the merger process from Barclays. And again we came to the conclusion that those options were not attractive enough, not creating enough value and at the same time of course, the most important thing, the execution risk would totally lie with shareholders of ABN AMRO. So the merger of Barclays was recommended. The logical consequence of the negotiations, we have with Barclays, the choice, the active positive choice we made ourselves.

Now in the meantime of course a lot has happened. Until we reached the 23rd of July, last week when we reached the situation in which we had a firm offer of the Consortium on the table and we had a revised proposal from Barclays. And this allowed us for the first time to really compare the two offers because they’re actually bidding for the same ABN AMRO, the same assets and it creates the opportunity to evaluate them next to each other. And with also setting the next step in creating a level playing field for all those bidders and for our shareholders.

On the… the interesting complication of course is the Dutch law situation which requires from the managing board and supervisory board to express a recent opinion on the merits of the proposal to all stakeholders of the bank and all stakeholders including shareholders. So the Dutch law requires from the boards not only to review an offer with a purpose of being capable of recommending it to shareholders, but to testify the grounding and ramification.

So we did review the Barclays offer in that context, and we concluded that the offer of the merger plan of Barclays deserves our support, our continuing support. It fits perfectly with our strategic vision. It has all the elements of a deal which we prefer, except for the fact that of course the price offered by Barclays at this point in time due to devaluation of the Barclays share in the market is not superior to the offer made by the Consortium. And therefore it cannot be recommended to our shareholders. So on the request of Barclays to make a recommendation we had to respond negatively, which we have done. Amendments to the merger protocol have been affected, the deal is… it continues to be governed by the merger protocol with a number of amendments, which we have filed today.

We reviewed on the same basis and with the same intensity the Consortium offer. The industrial plan of the Consortium offer of course which is based on the breakup of ABN AMRO doesn’t have the same value and merit to ABN AMRO stakeholders as the Barclays offer. In that sense, it has not the same reach. But of course, we have to make it clear that obviously the price offered for ABN AMRO to ABN AMRO shareholders by the Consortium is superior to the offer from Barclays. But at the same that doesn’t allow us to recommend that offer today because of a number of unknown uncertainties and potential obstacles which make it at this point of time impossible for us to recommend. To mention a few, the uncertainty around the shareholders meeting. The outcome of the shareholders meeting of the Royal Bank of Scotland and Fortis, whether they would approve the increase in their share capital. Secondly, the funding situation for Royal Bank of Scotland and Fortis in the present market circumstances. Thirdly, the Dutch Central Bank recommendation through the ministry. We have no idea of what the position of the Central Bank is, whether they will agree, not agree or agree with conditions and whether those conditions will be manageable by the Consortium or not. So it creates a substantial uncertainty. And the last part which of course, directly relates to the first three. There is a very general MAC clause in the documentation, which we think and believe is not acceptable to our shareholders. So a number of things have to become clear, or have to be changed before we will be in a position to recommend the offer from the Consortium.

So the conclusion was, after two days of deliberations that we could not recommend either offer to shareholders. We will engage with both parties to further explore the offers both financial side of it, whether any improvements are possible, but also particularly with the Consortium we want to engage actively to establish whether our concerns around the execution of the transaction can be mitigated or taken away. And we guess that also the Consortium has some further questions to ask from us. So, we will work the coming weeks and months to see that. And as far as it relates to ABN AMRO, both offers have a fair chance of being made available to shareholders for their choice.

So that’s the position as of today. We all know that things may change. Also the position of boards of ABN AMRO may change depending on the circumstances. We will be reviewing the situation regularly in the coming weeks and take all subsequent developments into account. And it looks like the most likely situation somewhere before the AGM to be held, and somewhere in September that we will have a definite review position again. And that we will come out with a new position at that point in time.

This is as far as our presentations go. I’ll end up with putting our conclusions on the screen so that you can just absorb the conclusions of our presentations, on the numbers and on the strategic development.

So I think we should leave it at this and give you an opportunity to ask questions. Yes, go ahead.

Question and Answer

Unidentified Analyst

I would like to ask a number of questions, if I may. First, when you received a letter early this year from BCI, one of the reasons why they wrote you a letter, and I wanted to propose some changes was that they thought that the share price was rather disappointing in the past few years. I remember in particular, a period when the share price dropped well below €20, which was rather disappointing, when you continued to proceed with the acquisition of Antonveneta, although perhaps some shareholders approved of that. Now with a €150 million net profit in the first half of the year on an annual basis €300 million for a bank for which you paid €7 billion. Don’t you think that shareholders at the time were right and that you shouldn’t have proceeded with that acquisition?

Unidentified Company Representative

Well, I don’t think with all respect to shareholders that those shareholders certainly did not make… could not foresee that, this result in the first half 2007 will be the result. There was a general sense… I don’t think there was any question of whether the acquisition by ABN AMRO was strategic or not. I think there was a general consensus it was. But there was a… there was some feeling in some quarter of the shareholders that we’re paying a rich price… too rich price, maybe. We have based ourselves at this time very much on the business plan by the company. And we have done, of course, our own independent review of the capabilities.

What we have to agree that that Antonveneta is taking more time than we anticipated, Raul [ph]. First of all, of course, when we made our decision to bid for Antonveneta between that time and actually when we got control over the bank, it was a year later. So only in April 2006, we were in control of Antonveneta, and we could get into the company.

Now we would have thought that by the end of the year we would not only be totally in control but also that we would have everything on track in terms of improving the performance, organizational structure, key people in management teams, new products launched, refurbishing of the branches, you name it. Very, very aggressive and ambitious program. Well, it took us more time. The organization did not respond as quickly as we wanted.

So what we see up till now, and that’s what we still believe, is that yes, indeed, we are behind; but we are behind and not off the track. But it's going slower. And certainly also apart from a number of one-offs left and right, negative and positive in the first half, it is true that the bank has not grown as fast as the Italian markets as such, which in a number of areas is of course hurting further performance of the bank. And Huibert [ph] can elaborate in detail, if you want some more detailed numbers.

But we are convinced that we are still on the track and that we are executing our programs, albeit slower. And although we don’t think that we cannot be certain that we can the make €500 million which we indicated, we are confident that we can beat last year’s results, so somewhere between €430 million and €500 million will be realized by Antonveneta. There is a steep increase in operating performance, but it's based on what we see today and the acceleration of activities and the organization getting really ready to market its products and services to its customer base.

Of course this works its way also through, for the projections for the next year and the year after, and we believe that we can still have the capability of making the projections which we had also for 2008. So on the basis of that, well, if we do continue to make those projections, then we can maintain that this acquisition was not only strategically very well positioned but also that from a financial perspective we will be meeting the hurdle rates which we have set in terms of return on investment within the timeframe still which we set for it.

Unidentified Company Representative

Only comment I would add to I think the very holistic description [inaudible] has quoted, your assumption that the €300 million net profit would be the end result is therefore not subscribed to by us, as we are forecasting perhaps some difficulty in achieving the €500 million. But certainly, as expected, as Rijkman has already said to exceed the previous year's net profit of €413 million. And on that basis I think you need to look at the performance of Antonveneta and in the following years we will closely need to track the performance to make sure that everything is going on course. We feel that we have done quite a lot in the last months to provide a firm platform for growth in Antonveneta.

Unidentified Analyst

I still have a few other questions.

Unidentified Company Representative

Sure.

Unidentified Analyst

€2.30 was your target for this year with an EPS of €1.26 for the first half, it seems indeed as if you are quite well on track at least with this target. And, however usually first half is traditionally much better than the second half for ABN AMRO. Given the fact that long term interest rates have been coming down more recently, it looks as if your ALM results which have been declining already in the first half will decline further in the second half. And given the market turbulence, I can imagine that the good results of Global Markets is going to be maintained in the second half. Even if you are making to €2.30 for the full year, do you think it's likely that the second half will not be as strong as the first half?

Unidentified Company Representative

I will give the general answer, then Hack [ph] can fill in, if that’s what he wants to add. If you produce €1.26 on an adjusted basis, in order to make it comparable with the €2.30 which is an adjusted number then if you would just simply double that number you get to, I can’t count but it's something like €2.52. Now €2.52 is more than €2.30 and if we say that we maintain €2.30, at least €2.30 that it indicates… I think you alluded to that, it indicates that we are cautious with the second half. So… and the reasons for being cautious are the ones you mentioned yourself. Market turbulence is of course something which probably could affect Global Market performance, spreads coming down; I am not too sure whether that is a serious influence on our business. The first half normally being better well, well, that’s true but last year it wasn’t, and with [inaudible] it was not true. But we also have our own reasons. We have done a bottom up forecast for the full year taking into account the assessments of the businesses, BU by BU. And the cautioning we have is ABN AMRO specific and that of course is that we cannot exclude that prolonged periods of uncertainty will cause some slowdown of business generation. It is possible. We haven’t seen any effects of that in the first half year. But of course it cannot be excluded. So that makes us, apart from market conditions, slightly cautious on the second half. But not that cautious to we cannot, dare not maintain our forecast for EPS.

Unidentified Company Representative

Yes, I think the EPS number is also of course derived off the kind of products that we sell in the market. You rightly point to Global Markets, which are very active in both equities fixed income and all sorts of credit products. We also have of course expectations for our other BUs. The combination of the corporate uncertainty, and the forecasting that we have done leads us to be cautious. But still quite firm on the statement that we are well on track to deliver the €2.30 EPS, which should give comfort to our shareholders, but also to market at large particularly in the bidding parties that are looking at our results.

As Rijkman quite rightly says, we have not seen any material impact yet from the corporate uncertainty or the uncertain conditions that we have for ABN AMRO, we are cautious. We are not saying that there will be material impacts, we are just cautious and therefore with some caution, we look at our numbers and that leaves us on the base of our forecast and all our assessments, to say we will certainly make €2.30. But beyond that we want to be a little bit more cautious.

Unidentified Company Representative

If you looked at the compound costs for the third and fourth quarter, the third quarter of course is traditionally slow in ABN AMRO, and has been every year and there is no reason to expect that to be different this year. Although I understand that people are still happy with the pipelines in July. And that of course would have to be made up by fourth quarter in order to be in line more or less with the second quarter. And there of course the caution sets in because we cannot look beyond the next few months to see whether the pipelines businesses are affected indeed by the, what Hack calls the corporate uncertainty. So it's particularly looking out to the fourth quarter that we cannot exactly say what the effects will be.

Unidentified Analyst

A last question on the corporate uncertainly, you can reduce that perhaps by coming as soon as possible with a clear vote on either one of the two parties. Have you made a date... set a date yet for the shareholders meeting? And is it possible that after the shareholders meeting of Fortis and Royal Bank of Scotland next week if they decide positively on the acquisition that you may come up with a vote before the AGM?

Unidentified Company Representative

Well there is no vote in these AGM in the Netherlands recommendations. Of course vote, the shareholders vote by selling their shares to one of the bidders. Now that we cannot influence apart from talking to our friends. But the Consortium has already set its offering period until the 6th of October. We understand that Barclays will do more or less similar periods. So that means that the shareholders will have the opportunity to actually select which bid to take for the next two months. And that’s not of our, that’s their doing. And there is nothing we can do about it, because we cannot… the interesting thing is that a recommendation of ABN AMRO for one of the two bids is not likely to change the behavior of our shareholders at all. Our shareholders will be led, most of them will be led by what’s the highest price available from any of the two. They don’t care whether Consortium wins or Barclays. They want the highest price. Substantial part of our shareholders will take that position. And there is a smaller group, probably a smaller group probably, but don’t know any percentages because we don’t have a register, so it's only a market information that we can base ourselves, but the smaller percentage. There is also a group of institutions that have to take the highest bid according to the bylaws and there is a group who has the freedom to make a choice, and that’s the group which is probably smaller, and they will not just took for the highest cash offer, but they will also look to the investment opportunity of reinvesting the money. And that of course, that option is only available on the Barclays side.

So, in order to work… for the shareholders wanting the highest price, they will probably just wait as just as long as they can before they actually sell the shares to any of the two. And the recommendation is not going to make any difference. The AGM, we have to hold according to the law, eight days before the run-up of the first bid announced, that’s the Consortium bid, the 6th October, so we have to work our way back. A minimum of eight days before the AGM, we are thinking of somewhere now in the third week of September, all things equal.

And in that third week of September the, a number of things will be clear. First of all, the shareholders’ approval of Barclays, the Royal Bank of Scotland and Fortis will be there on and off. Subsequently, if the approvals are there for Fortis and Royal Bank of Scotland, they can think about their funding whether they will start their funding operations and publish their underwritings. Of course, up till today, there is only a very general volume underwriting by Merrill, there is no specific underwriting per transaction. And the price, that still has to be done. And that of course is an uncertainty which today is in the market that might last for many, many more weeks and that’s the vagaries and the pressure of depreciation in the financial sector, which would cause difficulties in funding those transactions. But, we think that towards that third week of September, there will be clarity about that point as well.

And the last point, of course which is important in terms of clarities is the Central Bank’s position on the Consortium’s proposal. The Central Bank is… due to the time limits which are in place for the periods they have to come up with an advice is supposed to come out with an advice to the Minister somewhere around mid August. So the Barclays could potentially have the word from the Minister somewhere in mid-August. And then we guess that some months later for the Consortium because they also applied a month later to the DNB for the approvals. So that’s the three things.

In the mean time, we also have had extensive talks with the Consortium on the execution risks of the plan, on how they should be managed, who should be managing what et cetera. We should have negotiated to MAC clause, which presently is too general in the offering documents of the Consortium. At any point in time, without any reason that Consortium can run away, I don’t think that’s an acceptable position to our shareholders.

So, around that time, we should have clarity of all these points, and at the same time there should be… there has been share purchase movement and development, particularly in Barclays’ side and that could be an opportune time for the market to review again the offers of both parties, and come back again with a recent opinion as we have done this weekend, for that period. And then of course there is another two free weeks around, in which basically the final decisions by shareholders will have to be made.

Unidentified Analyst

Good evening, Rabo Securities [ph]. I have five questions, more operational related because you were very clear about the current issues. First is, the loan loss provisions are nearly at an all time high at ABN AMRO while we see at others at nearly all time lows. We see substantial increase in Italy, also in the Netherlands. Why are the loan loss provisions at ABN AMRO much higher than at the peers?

Unidentified Company Representative

Just for clarification, percentage wise or in absolute numbers, what you are talking about?

Unidentified Analyst

More in percentage.

Unidentified Company Representative

Would you like to know them one-by-one or shall we… okay. Maybe we can turn back to the slide that dealt with provisions. And let’s see if I can find it quickly for you. And but let me first disillusion you of one notion, and that is that we have high provisions than our peers. Particularly, if you look at the provisions that some of the other banks, for example Citibank and HSBC, you will see provisions levels that are very similar to ours. Why do I say that? Because the way we look at our provisions and we try to talk through our provisions is very much related to whether they are either from a consumer perspective or from a commercial perspective. To be multitasking is not easy for men, as I've read somewhere and I'm proving the point as well. There we go.

I think you correctly highlighted about the three units. But we also see on this picture first… the first comment I would like to start off with, 82% of our provisions are from consumer and 18% are commercial. We are actually seeing an all time low comparable to most of our peers in those particular segments relative to commercial. You can see for instance that Europe that has hardly any consumer business has hardly any provisions. Similarly, you see that we have relatively low levels of provisions in areas that have big commercial exposure.

And let’s take you through the four units, that as you indeed reflected on. The first one is Antonveneta. Antonveneta, we changed the accounting in Antonveneta, we alluded to that already when we reported on Antonveneta in the Q3 and in the full year, which has to do with a different way of accounting for provisions. If you take out the effect, and I refer you to the press release pages that deal with Antonveneta, you will see that the difference between last year and this year is $16 million. We also have made a statement in our press release relative to Antonveneta that we expect provisions to go down as a consequence of our improved, credit approval systems. That should give you some comfort for Antonveneta.

Provisions in the BU Latin America are really of course a consequence of significance growth, as I also shared with you of the overall retail loans portfolio. We have shown indeed as Reijkman is saying, 21% growth over the last two years in those portfolios and with that come provisions. So what we then always look at is our net credit margin, which is very substantial in Brazil.

The third one is our provisions in Express, as base points in the Netherlands are still acceptable, although we did have to take two substantial additions in the corporate clients area.

And finally, the provisions in BU Asia, as you can see move up, but they move up in line with the growth and actually they are better than growth, i.e. lower than the growth levels in Asia. So the total growth from €720 million in the first half ’06 and €886 million in the second… in the first half of ’07 leads to a change of €166 million net. If you compare that change to the overall growth of the portfolios, particularly because as I said earlier, 80% plus of this is consumer. We would actually say they're both on the peer level, i.e. comparing it to those players in those markets that is Taiwan, Latin America et cetera. We have ample public data that shows that we have actually slightly better performance in terms of our provisioning. We do expect provisioning to increase marginally in commercial portfolio, I already indicated that we are at lows to the market. A feature of ABN AMRO, Brazil is now our third largest net profit contributor, will be, with that size of a consumer portfolio in Brazil, is that you will see a different profile as we have explained over the last two years than in the past. And that drives these numbers on provision. And we feel comfortable from an ABN AMRO point of view that these provisions are both appropriate and enough to cover our sins, if you will, but equally also leave us with high credit margins over the products that we sell. That’s the first point.

Unidentified Analyst

Second question is about, what was the amount of net inflow in private clients because it was mentioned in the press release for asset management, but not for private clients?

Unidentified Company Representative

On the assets under administration in private clients, we don't usually give the accumulation of new assets under administration. What you can see in the units, as we say, is that we've had two bits of impact. One is, we have sold our business in Miami and that of course had a significant… not significant… a meaningful number of assets under administration on its books. We haven't disclosed the actual number. But what you can see is that the mix of products in terms of higher volumes in non-interest related products like stocks, investment funds and structured products has led to an overall increase by 4.7%. And if you look at the total, or the profits for the period excluding the gain on the sale from Miami, you end up with a very robust 27.3% increase to €154 million in terms of net profit. That is important, and that’s therefore more a result of inflows in volume or less a result of inflow in volume, more a result of different products sold which clearly have a higher margin.

Unidentified Analyst

Well, perhaps still more, the answer on my question, was the net inflow of private clients positive or negative, because in asset management it looked negative?

Unidentified Company Representative

What you can see here, and I draw your attention to page number 25 of the press release, we have tried to be as specific as possible on the assets under administration which of course we have given the gross numbers, so up from €133 billion to a €150 billion, mainly reflecting higher net asset values. But we are not giving specific numbers. We are also giving the net new inflow as a consequence of the Vermogensgroep and the deduction of €2.4 billion of the sale of PC. But further than that we don't go and we are just pointing out at this point in time that the increase in profitability in private clients should give you quite a lot of confidence on both the business model and the ability to give us right return on assigned risk capital.

Unidentified Analyst

Okay. Then a third question and it's about business unit, the Netherlands, little bit results are distorted by the inclusion of the global activities. Is it possible to give the results of Dutch activities without the global activities?

Unidentified Company Representative

We have undertaken to report externally, the BU NL as any regional BU, inclusive of global clients, since the 1st of January '07. What we were keen to do is make sure that the commitments end would attract [ph] in terms of return on the assigned risk capital commitment we made for global clients. So we do publish on a semiannual basis the results for global clients. But it won't be the other way around. So you won't be able to get access to those numbers.

Unidentified Analyst

But of course slightly more volatility introduced in the BU NL numbers due to the inclusion of global clients?

Unidentified Company Representative

Yes. And you can see that actually in the second quarter, to Reijkman's point. So you see that because there were a significant number of bigger deals in the first quarter, but not in the second, you see some volatility as a consequence.

Unidentified Analyst

Well, as a consequence more difficulty to analyze the result. Then, a third question and perhaps combined with the last question. Third question is about BU asset management. What was the reason for the outflow of May? Are some big clients leaving or is it an overall outflow of activities? And the last question is, very large advisory costs in the second quarter. What do you expect in advisory costs for the second half of this year?

Unidentified Company Representative

To answer your question on outflow, as you mentioned they're related particularly to one activity in one subset of our fund offering, in particular. And across the board we saw, as you can see, a positive market appreciation and some minor net negative outflows. We did see strong inflows at asset [ph] mix and we did see a very stable asset mix. I think that gives you a little bit of a feel for the asset management business.

In terms of your question on the advisory fees, do I understand correctly, you're referring to the advisories that we have included in the note for the… under the first segment, namely the advisor fees for the transaction. Yes. Yes. And what is your question around that?

Unidentified Analyst

How much fees do you expect in the second half of this year?

Unidentified Company Representative

We have... you can, I think, assume that that number will not quite double. But it will be close to that number in the second half, so that [inaudible] in totality is doubling that number with a small margin, to the… in the right direction.

Unidentified Company Representative

Okay. Thanks very much for that. Anyone else?

Unidentified Analyst

Two questions. One question just, follow up on a BU Netherlands, especially on the lower volumes at consumer loans. Could you clarify how the trend is going especially because the economy is growing quite well.

And, my other question is, you mentioned in the evaluation process that you are now neutral. Does that also mean that you find it a realistic option to untangle the Bank and its activities in the Netherlands and in other countries?

Unidentified Company Representative

Yes. I'll go just… go to the second one and you can answer the… find the other one. The position for the Banks... we cannot recommend either of the two offers. But, we do continue to support the Barclays offer, due to its strategic content and the opportunity to keep ABN AMRO more or less intact, retain all growth opportunities, and create bigger opportunities for our customers. The break up scenario as such as proposed by the Consortium is not a favorite as such, of the... compared to the offer or the plan... the industrial plan from Barclays. It's not to say that we cannot... that we cannot ultimately recommend the offer of the Consortium to our shareholders, but if you just compare industrial plan from Barclays versus the industrial plan of Consortium, to us, on balance, that looks the more favorable outcome for the Bank and its, and its stakeholders. That's the conclusion which we have drawn over this last weekend and published today.

Consequently and implicitly of course, it says something about how we feel breaking up the bank. We don't think it's... we cannot convince ourselves that it is in the interest of other stakeholders and the shareholders, but that doesn't mean that, under varied details, circumstances it might be something which ABN AMRO will conclude to do. The thing is, what has come out of our analysis of reviewing a... many of us, we call it managed breakup by ourselves, is that the value range which we can create with that exercise, is around the offer from the Consortium. The range goes slightly lower to slightly higher. No. That's...that is... that's not the difference of 35... 30%, 50%, 100%. It’s a marginal difference and that has to do with the fact that the offer of the Consortium is fairly pricing the overall ABN AMRO. Maybe not in all parts, you could say it's valuing the business properly. But overall the valuation of ABN AMRO seems to be alright, if we do our own analysis of valuing all bits and pieces against super premia available in the market.

So in itself, we cannot create superior value of what the Consortium offers. So then you have to compare it for our shareholders. Is it in the interest of our shareholders to tell us, you do the break up yourself? Of course, we can mitigate the risks because we can manage it much better than the Consortium because we know this bank. We know how to do it, but the end results will take quite some years to do it effectively. There is a substantial tax liability, which we have not been able to find out how we can circumvent, because you talk about returning to shareholders basically all the capital, €70 billion plus to shareholders, which we cannot do today in a tax efficient way. So the range which we have, the valuation range which we have, doesn’t take into account, time value of money nor the potential tax effect, the tax leakage if we would have to do it. We do not have the capability for the buybacks in that scale, repaying reserves of all kind, what have you, all kinds of measure you could think of. So that could be a complication.

And this means basically the execution which I am describing in this scenario, rests totally with our existing shareholders. If our shareholders allow that to do they will take the risk of this execution? Last, of course if they offer their shares to the Consortium and they kept cash, they’re out and they don’t have the execution risk. So we cannot see how we can turn this into a viable opportunity for our shareholders. Not for a few, for a Euro of difference. You would need substantial surplus value in order to make, to compensate for the execution risks. You’re thinking? Can you understand what I’m saying?

Unidentified Analyst

Yes, I exactly understand. But that means also that from a board perspective, your view still is that for the customers and your employees, Barclays is the preferred option.

Unidentified Company Representative

Yes correct. Yes.

Unidentified Company Representative

Maybe I can now give you an answer to the first part of your question, which is of course, commented as you can see on page 12 of the press release. We, I think that’s where you picked up the comment from in terms of consumer loans growth. It says, although commercial loans saw volume growth and lower margins, the inverse took place in consumer loans i.e. we’ve not taken price as a way to compete with our consumer loans business. We have seen very healthy growth in our mortgage business, but even there we’ve not always competed on price because that business remains under pressure. So we take a very deliberate approach to our pricing methodology to the Dutch market and we certainly don’t see ourselves as competing on price only. And that leads to the volatility in the market shares that we fully accept interest delivering value both into customers and ourselves. Is there a question from the telephone?

Operator

Thank you. [Operator Instructions].

John Mathos from Alpine Associates is now on line with a question.

Unidentified Company Representative

Go ahead.

Operator

Excuse me, John, please go ahead with your question. Excuse me. Stuart Graham from Merrill Lynch is on line with a question.

Stuart Graham – Merrill Lynch

Hi, can you hear me?

Unidentified Company Representative

Yes we can, hi Stuart.

Stuart Graham – Merrill Lynch

Hi, there. I had two questions on risk please, for Mr. Boumeester. Firstly, on levered loans, can you maybe comment on the condition in the levered loan market at the moment and are you still active in that business and maybe you could tell us what your volume of underwriting commitments is at the present time on levered loans?

And the second question is, you are sub-prime in your market in your business maybe you could tell us what your exposure to US sub-prime related ABS is? And also CDOs based upon US sub-prime ABS please?

Huibert G. Boumeester - Chief Financial Officer, Member of the Managing Board

Thank you, Stuart. I think, if you allow me, I’ll start with the sub-prime question. We have no material exposure to the sub-prime markets in any of our businesses. And secondly, of course we do closely monitor the counterparties that may carry sub-prime risks in their books. And we will continue to do so as the markets evolve.

On the leveraged loan, you wrote, or Merrill Lynch wrote, I think a report on the developmental views of CROs in the back end of last year, relative to the expectations of risk in the leveraged loan markets. I think I was also one of the people polled at that time, and it was clear from our outlook that we were very cautious about the leveraged loan portfolio. Consequently, ABN AMRO has managed its, both its underwriting limits and its final take limits conservatively and we are not concerned with our exposure to leveraged loans. We are still concerned with some of the development in the marketplace and we will also continue to monitor that.

Unidentified Company Representative

Yes. Okay, that answers your question, Stuart.

Stuart Graham – Merrill Lynch

Thank you.

Unidentified Company Representative

Any further questions from the telephone?

Operator

Meyer Jach [ph] from Dresdner is now on line with a question.

Unidentified Analyst

Hi, this is Jach Meyer [ph] from Dresdner. I had a couple of questions. The sale of LaSalle certainly caused some confusion by the capital allocation between your business units and the holding. And now looking at your net interest income from the holding, it sharply fell in the quarter mainly due to lower LM gains, I presume. But is it true that you overcapitalized your BUs at the expense of your holding. And if so, how do you charge for those intra-group financing? That’s my first question.

My second question relates to the AFS gains on debt securities. You seemed to have picked up quite a lot. And I was just wondering how you would allocate them to different business units. And finally, maybe I don’t expect an answer on the other one but which parts of the business units do you think are not fairly priced by the Consortium?

Unidentified Company Representative

Are not… sorry… are not--?

Unidentified Analyst

Which business units of the Consortium are not fairly priced, according to your view and which are actually fairly priced?

Unidentified Company Representative

Okay. Maybe we could start with the capital question first. We’ve tried to explain to you and it's available of course still in terms of the accounting reconciliation on the capitalization of ourselves, and also relative to the capital ratio that we need within LaSalle and for the bank as a whole. We do manage capital tightly at 6.1%. Our core tier 1 ratio has come out for the first half. We do not have a policy if deliberately under leveraging any of our units and we certainly won't start doing that either.

Unidentified Analyst

The how do you explain the negative €7 million of net interest income then in the holding?

Unidentified Company Representative

Yes, I was going to come to that. So the net interest income I think you are rightly alluding to, we have less ALM revenues than we had seen in… over previous years. That will continue to be the case in this kind of environment.

And perhaps I can just jump to your other question, which is around interest of our assets held for sale, our securities portfolio. Yes, that represents the total benefits from our assets held for sale and the P&L consequences of that, we do not split them out by BU.

Unidentified Analyst

I was just fearing that you’re maybe inflating the BU Europe by some debt sales you’ve done. They seem to be quite high. Certainly not sustainable.

Unidentified Company Representative

Sorry could you repeat that question?

Unidentified Analyst

They certainly do not look sustainable, those gains in debt securities, at the level we’ve seen in the quarter close to € 200 million.

Unidentified Company Representative

We’ve seen good returns from the securities that we had in our portfolio. And I would certainly not recommend that you assume that they will be the same going forward,per se.

Unidentified Company Representative

On the fairly priced question, we think that, not to name any specific assets, but we think that there might be a certain undervaluation of emerging market assets and a certain overvaluation of mature assets, assets in the mature markets.

Unidentified Analyst

Interesting. And on the capital occasion, it should be then assumed that roughly you’ll allocate about 6% to every BU. I presume that there are not major deviations.

Unidentified Company Representative

Deviations are sometimes caused by local regulations which may require of course a higher capital ratio, which is currently of course the case in most emerging markets. Therefore, you might, because of regulatory reason, see some over allocation of capital. But it was never our intention to deliberately undercapitalize any units.

Unidentified Analyst

And you do charge for inter-group financing?

Unidentified Company Representative

Of course. And to confirm that point, yes.

Unidentified Company Representative

We follow a methodology of assigned risk capital, which is a side or a scientific way of allocating capital on the basis of risk assessment and the price for that is the same.

Unidentified Analyst

Yes, you have been… you have disclosed that previously. That’s fine. Thanks a lot.

Unidentified Company Representative

Any further questions from the telephone?

Operator

Arturo De Frias from Dresdner is now on line with a question.

Arturo De Frias - Dresdner Kleinwort

Yes. Hello, I have a couple of further questions, I am afraid again, related on the offer and on the mechanics of the… to the fund offer or your view to the fund offers, going forward.

First question, you have alluded several reasons why you still cannot recommend the Consortium offer. And I think the two first issues related to Fortis, the EGM, the ascertainment ahead of the EGM. And the second was the ascertainment related to the funding, which probably to some extent is the same point. My question would be if the EGM of Fortis goes ahead and they get authorization for the capital increase, would that impact your view of the Consortium? Would that help us… help you to recommend the Consortium offer?

And the second question, and related to the first one. You have said that despite you have withdrawn the recommendation for the Barclays, where you still support the Barclays offer to some extent, because they still want to kind of acquire most of ABN. But there are people in the market who think that still the ABN… sorry, the Barclays offer is significantly inferior to the Consortium offer, and the only way that the Barclays can change that is by selling more assets, or pledging to selling more assets of ABN. If they were to do so… if they were to announce for example that they have pledged to sell Brazil asset, but it will increase the cash in their offer, would that impact negatively in your view, in your still kind of support of the Barclays offer? Thank you.

Unidentified Company Representative

Your first question, I'll try to answer. Of course, the uncertainties and unknowns relating to the Consortium offer make it for us impossible today to recommend the offer. But I also said that we can clearly see a situation in which we would recommend the offer… if the offer financially continues be clearly superior to the Barclays offer and the uncertainties we mentioned are gone away… have gone away like the Fortis shareholders meeting, the funding at the Dutch Central Bank, the MAC clause, a number of things. So, we are not excluding at all that at some point in time we would recommend the Fortis offer.

The… you are absolutely right. Why didn’t we recommend Barclays offer? Because the Barclays, although, as a industrial plan is favorite… more favorable than the consortium plan, it is inferior to the shareholders and therefore we cannot recommend that offer. That could change. But your question now relates to selling more assets. Well, it is our understanding, with Barclays, and we have an agreed deal with them, as you know, that this is what it is. We decided to sell LaSalle and we met their agreement at that point in time when we posted to them. And the merger rationale, the merger strategy of this combination is based on structurally investing in growth markets. And we count Brazil and Antonveneta within the Italian growth market as key assets in that growth strategy. So we could not imagine that a merger… an agreed merger with ABN AMRO would consist of selling these key assets.

Unidentified Analyst

So, in other words, if they were to need to sell Brazil, you would immediately withdraw your recommend… well, it would make it impossible for you to recommend their offering?

Unidentified Company Representative

Well, it would not… that depends of course… but I think the basis for the merger agreement could then be doubted and it could not any longer be an agreed merger between the two of us. It could therefore be an un-agreed deal… an un-agreed offer, like the Consortium today is an un-agreed offer. And as I earlier said to you, we could even recommend an un-agreed offer from the Consortium. So technically there could still be a possibility that we would recommend it, because of course that bid would become superior to the Consortium, because that is the only criteria which we use for recommendation, recommending an offer to shareholders that the bid has to be superior to shareholders.

Unidentified Analyst

But to some extent, and correct me if I am wrong, this is kind of eliminating the possibility of you recommending the Barclays offer itself, because it seems that Barclays will not be able to present a superior offer to the Consortium without selling all their assets. So, either the offer is not superior where they will sell all their assets, and in both cases, you won't recommend their offer.

Unidentified Company Representative

Well, I remind you, I am not going to speculate whether the share price from Barclays could not gain to such an extent that the offer automatically, the see through price for ABN AMRO would become superior to the offer from the Consortium. That is not to be excluded technically. And there are few reasons which underlie the potential for the Barclays share price to recover. First of all, the standalone value of Barclays by the analysts, but also the consensus says that it should be around 8 sterling and not where it is today. Secondly, the market has not incorporated any of the cost synergies contemplated with the merger with ABN AMRO. They are not in the share price either. And thirdly, the market has digested, but also has now put the share price to positive effect of the strategic cooperation with China Development Bank. So there are enough grounds to underpin the possibility that the Barclays share price would recover sufficiently to become the basis for a competing and a superior offer to the Consortium.

Unidentified Analyst

To some extent, and sorry to reiterate, but to make it clear, to some extent the only hope that Barclays still has in order to again be recommended is that the share goes up substantially.

Unidentified Company Representative

I would tend to agree with that.

Unidentified Analyst

Okay.

Unidentified Company Representative

Any further questions from the telephone.

Operator

Jean-Pierre Lambert from KBW is on line with the question.

Jean-Pierre Lambert - Keefe, Bruyette & Woods

Yes, good afternoon. Jean-Pierre Lambert from KBW. Three questions. The first one is, what is the total net profit contribution of global markets plus global trading? I mean there is overlap between the two. Just to see what is the contribution of corporate investment banking, if you wanted the total group. Already I think global trading is around 32%. So I wonder, if global markets is around 32%, if you add global clients, sorry, then what is the total of global markets plus global clients excluding the overlap. Second question is…

Unidentified Company Representative

Excuse me, just for understanding properly, you just said global markets plus global trading and what about global clients?

Unidentified Analyst

Global markets plus global clients.

Unidentified Company Representative

Global clients. Because you said global trading.

Unidentified Analyst

Yes, that was a mistake of mine. Global markets plus global clients. There was an overlap between the two. And I just wondered like what is the net profit contribution of those two units to the total group?

Unidentified Company Representative

We, as you know, we assumed a different way of reporting from 1st January, 2006. For ease of reference, we did include a way of looking at our 2005 numbers on that basis in our annual report of ’06. We no longer provide that data. I can tell you what the contribution in terms of profitability is from global markets because we have put it in our press release which is around 30% of our total basis. And we have, of course, highlighted the point that the profit for the period is €730 million for global markets. We do not provide other data.

Unidentified Analyst

Okay. Second question, and coming back to the disposal, you have indicated that it's not your intention to proceed with significant disposals in the present time. I mean, could you reconsider that the disposal of private banking, for example… private clients, would be not a significant one? Would you be approached as I candidate for that activity?

Unidentified Company Representative

The answer I think is no, we wouldn’t consider the major disposal and we are not undertaking any major disposals.

Unidentified Analyst

Thank you. And the last question is purely informational. What is size of the risk weighted assets of the LaSalle activity, maybe it's disclosed?

Unidentified Company Representative

What's the size of the…?

Unidentified Analyst

Risk weighted assets.

Unidentified Company Representative

Risk weighted assets, okay.

Unidentified Company Representative

Its €64 billion.

Unidentified Analyst

Thank you very much.

Unidentified Company Representative

But let me clarify that further. If you want further data on that, I will be very happy to give those to you and refer you to the right section through investor relations.

Unidentified Company Representative

Any further questions from the floor or from the telephone, because we are getting to the close.

Operator

Ralf Breuer of WestLB is on line with a question.

Ralf Breuer - WestLB AG

I would like to ask you two questions related to sub-prime mortgages in the US. First, did you assume any liabilities in the course of the sale of the ABN AMRO mortgage group? And might there be any change in terms for the sale of LaSalle if there is a substantial change in the risk exposure from the portfolio you handled. Thank you.

Unidentified Company Representative

No, we have no remaining liabilities as a result of a sub-prime portfolio because it is both significant in LaSalle. We also have no significant sub-prime portfolio exposure elsewhere. And the adjustment for price is on a dollar for dollar basis in terms of the projected net profit for LaSalle for ’07, as we have published in our section on the DUS [ph]. But we are confident that that will not come into play.

Unidentified Company Representative

We were not in the sub-prime business in the mortgage business. So when we sold the mortgage businesses we did not own sell sub-prime business.

Ralf Breuer - WestLB AG

Thank you very much.

Operator

There are no more questions from the phone at this time.

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