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ABN AMRO hikes Q2 provisions for anti-money-laundering program, may face fines

ABN AMRO Bank NV has increased provisions for its client due diligence program after a regulatory request to expand its scope, CEO Kees van Dijkhuizen said August 7.

The Dutch central bank DNB ordered ABN AMRO to review its retail banking clients in the Netherlands, in addition to an already running due diligence of the group's corporate bank and its international card services, Van Dijkhuizen told analysts during a second-quarter earnings presentation.

Like many other European banks, ABN AMRO increased measures to prevent financial crime in the second half of 2018. This followed the discovery of a large-scale, money-laundering scheme linked to the Estonian subsidiary of Danske Bank A/S, which is said to have been used for more than €200 billion in dubious transactions from 2007 to 2015. This has prompted European regulators to tighten requirements and test banks' internal controls on financial crime prevention.

The Dutch regulator said ABN AMRO should accelerate its due diligence process. The bank is discussing time frames, Van Dijkhuizen said.

ABN AMRO made a pretax provision of €114 million for the retail clients' review in the second quarter of this year, after booking an €85 million provision for the corporate client and cards review in the fourth quarter of 2018.

In the course of the current review, the bank may face potential regulatory sanctions such as an instruction and/or fines, Van Dijkhuizen said, confirming an earlier statement in ABN AMRO's earnings report. ABN AMRO has no indication of any fine at the moment and based on current information is not aware of a criminal investigation against it, the CEO said.

Over the next few years, ABN AMRO plans to further increase the number of staff working on client due diligence by "a couple of hundred at least," Van Dijkhuizen said. The bank has tripled to roughly 1,000 the full-time-equivalent positions allocated to client due diligence since 2013, according to its second-quarter statement.

'Confident in our actions'

The higher costs related to expanded client due diligence at the group should not prevent ABN AMRO from achieving its €5 billion cost base target in 2020, CFO Clifford Abrahams said. "Although we see incremental cost inflation coming through, we are confident enough in our cost actions," he told analysts, adding the bank is comfortable with its current guidance.

The provision for client due diligence contributed to the 4% increase in ABN AMRO's second-quarter operating expenses to €1.31 billion, from €1.26 billion a year ago.

Despite the provision, the Dutch lender increased its second-quarter net profit attributable to owners of the parent company to €693 million from the restated €684 million in the same period of 2018.

On August 7, ABN AMRO's shares opened at €15.96, well below the prior-day close of €16.56, but recovered later in the day. The share price was €16.24 at 14:42 p.m. CET on Euronext Amsterdam, 1.93% down on the prior-day close.