Dutch bank ABN Amro has warned that provisions for souring loans could balloon to €2.5 billion this year as the coronavirus crisis and oil price crash triggered a higher-than-expected first quarter loss.
The lender has one of the biggest exposures in Europe to the global oil-and-gas industry.
It racked up losses in the first quarter when some of its trading clients ran into trouble due to market volatility.
Chief executive Robert Swaak, who took the helm last month, said he was ramping up a review of ABN Amro's investment bank to be completed by August.
"Although in the past few years some progress has been made in improving returns, this has not resulted in the required profitability...(and) the risk profile is not fully aligned with that of the bank," he said.
ABN reported a first quarter loss of €395m compared with a net profit of €478m the same time last year.
It took €1.1 billion in loan loss provisions for the first quarter partly due to exposures to two clients, it said, one of the biggest charges among European banks.
The bank had a $300m exposure to Singapore oil trader Hin Leong Trading, according to documents seen by Reuters.
ABN is one of numerous banks taking court action against the trader that is currently restructuring its debt after admitting it had not disclosed more than $800m in losses over several years.
ABN also booked a $200m loss from a single US hedge fund that was one of its clearing clients, which failed to meet its margin requirements after running into problems trading options and futures.
Since its bailout by the Dutch state in 2008, ABN has refocused on the Dutch market, cutting thousands of jobs in the process.
The bank was re-privatised in a 2015 initial public offering at €17.75 per share. The Dutch state still owns a 56% stake.
"Based on our latest assumptions, we expect the cost of risk (provisions for bad loans) for the full year 2020 to be around €2.5 billion," CEO Swaak said.
That compares with net profit for full year 2019 of €2.05 billion, which included €657m in loan provisions.
The bank said operating profit for the first quarter came in at €624m, down 17% from €754m last year.
In a note, analysts from Jefferies said the company's underlying performance was better than expected, but overshadowed by the provisions.
ABN had warned in March that it would suffer a loss for the quarter and scrapped paying dividends until October 1 at the earliest.
ABN continues to await the result of a criminal investigation launched by Dutch prosecutors in September over alleged failures to detect client money laundering.
A similar probe in 2018 led to a $900m fine for ABN's larger Dutch competitor ING Groep.
