As reconstructed Dutch bank ABN Amro prepares to go back to the stock market, the bailed-out lender's modest new profile appears to be chiming with crisis-hit, risk-averse investors.
ABN Amro was bought for $100 billion by Royal Bank of Scotland, Fortis and Santander seven years ago but then had to be taken over by the Dutch government during the financial crisis. Now it is valued at just 15 billion euros ($21 billion) and its scaled-backbusiness depends on the Netherlands for 80 percent of its earnings.
Changing the marketing line from "international financial giant" to "Dutch retail bank" was tough initially for chief financial officer Kees van Dijkhuizen. But the response from potential shareholders has been telling: while around 25 people dialled in to the bank's first investor call in summer 2011, the last call in February had about 100 participants.
"I understood that it was actually an advantage," said van Dijkhuizen in an interview in his 21st floor office in ABN's headquarters, which dominate the skyline of Amsterdam's financial district.
Van Dijkhuizen is preparing to return ABN to the stock market from next year. The bank has spent the best part of three years educating would-be shareholders about the bank's conversion to a "steady as she goes" philosophy that values lower risks over higher returns.
With many of the world's major banks still stuck paying for the sins of the past, that's an attractive proposition for investors with an eye on a stable dividend.
"What you get is a low-risk bank serving the communities of the Netherlands, well capitalized, not planning to do anything too exotic," said Christopher Wheeler, analyst at Mediobanca.
"People want stable yields."
LOW MARGINS, SAFE DIVIDEND
The picture is not entirely rosy however. The new ABN Amro is operating in a weak Dutch economy, which was stripped of its AAA rating by Standard & Poors in November and is expected to grow by less than the EU average in 2014 and 2015.
Provisions for loan losses dragged down earnings for both ABN and peer ING in 2013 - ABN earned 1.2 billion euros in profit last year compared to almost 10 billion in 2007 - and prospects for loan growth look slim.
"The main downside risk is housing," said Alexandre Birry of ratings agency S&P, which downgraded the ratings of the Dutch banks it covers in December after stripping the sovereign of its AAA rating weeks earlier.
Nonetheless, in spite of the weak growth and low margins, ABN still managed to pay the government a 350 million euro dividend last year, representing around 30 percent of earnings, and is targeting a payout ratio of 40 percent by 2015.
"If management can sell the IPO as a solid dividend (yield) story the IPO should be doable," said Patrick Lemmens, a Rotterdam-based fund manager for Robeco. "Of course it's also very important what the size would be of the initial listing. It should be large enough (to guarantee liquidity) and not be too large (for the market to absorb)."
Lemmens suggested 3 to 5 billion euros as a potential first tranche.
One investment banker who asked not to be named said he believed the flotation would be successful despite the current economic slump.
"It's one of the clear winners in the market," he said. "The Netherlands is a solid economy and this is a company with a solid position...But it doesn't have the sex appeal of an emerging economy bank".
2015 IPO
The Dutch state, which pumped 21.66 billion euros into ABN's 2008 bailout, has signalled the first batch of the bank's shares could go to private investors as soon as 2015.
In preparation, Dies Donker, ABN's head of investor relations, and her team, have been visiting Europe's top 30 bank investors in Frankfurt, London and Paris since 2011. Their efforts have been complemented by the bank's IPO office, created in late 2013 and stewarded by Fred Bos, a 23-year veteran of the group who came to ABN when it was merged with the Dutch operations of Belgian bank Fortis.
Relations between the NLFI, which manages the government's stake, and the bank's management have been good but to avoid any potential future confusion, negotiations are underway to map out who will decide what when it comes to the IPO.
Bos said ABN would be consulted on key issues like how much of the bank to sell and pricing.
Ahead of the IPO, non-core assets have been sold, while peripheral business, including an international diamonds and jewellery office in Botswana, have been closed.
"We want to be a clear, transparent bank without a lot of legacy issues," said Bos.
ABN needs to send a strong message - starting from next year, Europe's stock markets will be busy with bank listings.
Up to eight British banks could list on the London Stock Exchange in the next two to three years. TSB and Williams & Glynn are being sold off by Lloyds Banking Group and Royal Bank of Scotland respectively as a condition of their government bailouts during the 2008/9 financial crisis.
Santander has been considering a flotation of its UK arm for several years, while National Australia Bank could also spin off its UK business. Others planning IPOs include Virgin Money, Metro Bank, Aldermore and Shawbrook, which are among a growing band of new British banks looking to break the dominance of the country's biggest lenders by taking advantage of government measures to stimulate competition.
Mid 2015 is the earliest practical time for ABN's IPO - the bank wants to wait for the results in late 2014 of an EU-wide sector health check to decide when to begin the process of hiring advisors and drawing up a prospectus.
Van Dijkhuizen would not be drawn on when the bank would relist but said it would take stock in the third quarter of 2014 and give its recommendation to the finance minister.
He did say that investment banks were circling, but so far none has snared what will be one of the biggest IPO mandates in European financials.
"A lot of people are interested in us at the moment," said van Dijkhuizen. "We love to talk with them - we get a lot of free advice."
(Additional reporting by Freya Berry and Matt Scuffham in London and Carmel Crimmins in Dublin; Editing by Sophie Walker)
