(Bloomberg) — ABN Amro Bank NV will cut its investment bank by about a third and shut down lending outside of Europe as the Dutch bank tries to turn around business hit hard by the market chaos caused by the coronavirus crisis.
ABN Amro will stop providing corporate finance outside Europe and exit trade and commodity financing altogether, the Dutch bank said on Wednesday. As many as 800 jobs could be lost over three to four years as the investment bank pulls back from activities that currently bring in about 45% of client loans.
European lenders including Deutsche Bank AG, Societe Generale SA and BNP Paribas SA have been slashing and refocusing their investment banks as they seek to cut costs and get out of higher-risk businesses. Chief Executive Officer Robert Swaak accelerated his review of the investment bank as volatile markets hit profitability and caused large impairments at the unit.
“The new CEO has essentially delivered what we asked for over a year ago, namely a proper wind-down of the CIB business. A pity that it took a pandemic to do so,” Barclays Bank Plc analyst Omar Fall said in a note. “The focus will now be on how much of the very sizable 2.5 billion euros of CIB wind-down capital will eventually return to shareholders.”
ABN Amro rose as much as 9.4% in Amsterdam trading, the most in two months, and was up 8.3% as of 3:40 a.m. The stock has declined by 46% this year. That compares with a 32% drop by the STOXX 600 Banks Index.
Net Loss
The bank reported a net loss of 5 million euros ($5.9 million) for the quarter on writedowns and a slowdown in lending prompted by the Covid-19 crisis. Provisions for loan losses declined to 703 million euros from 1.1. billion euros in the first quarter. ABN Amro said it expects provisions to total 3 billion euros this year, partly on costs to wind down loans at the investment bank. That’s up from an earlier prediction of 2.5 billion euros.
Corporate banking in the U.S., Asia, Australia and Brazil will be wound down, but the bank will retain its global clearing business, one of the world’s biggest, the company said. The natural resources and transportation and logistics parts of the business will focus on European clients only.
“Clearing has taken several de-risking measures in the past months following a large loss incurred earlier this year,” it said. The bank said it expects additional impairments related to job losses and the wind down of corporate loans.
‘Tough Decision’
“It’s a tough decision,” to exit trade and commodity finance, a business that has been historically strong for the Netherlands, Chief Financial Officer Clifford Abrahams said in an interview. “We’ve been in these businesses in some cases for hundreds of years. It’s tough for our clients and our staff, but we are convinced it’s in the best interest for the bank.”
CEO Swaak said that ABN Amro lacks scale in the rest of the world but it is looking to “invest and grow” in its corporate banking business in northwest Europe. The lender is currently also conducting a strategic review on operational efficiency, financial targets and capital distributions, which will be presented in November.
ABN Amro is among the four banks with the highest exposure to Wirecard AG, the defunct payments company that prompted competitors ING Groep NV and Commerzbank AG to take provisions of about 175 million euros each in the second quarter, Bloomberg reported in June. The bank said an “exceptional client file” contributed to the high impairments in the second quarter.
Exceptional Charges
“We don’t comment on specific clients, but the exceptional client file that caused high impairments reflect a potential fraud case in Germany” Abrahams said when asked about the impact of Wirecard.
ABN Amro reported provisions of 616 million euros for three exceptional client files in the first half of this year. Two cases in the first quarter accounted for 460 million euros, leaving 156 million euros for the German case.
The corporate and investment bank accounted for 14.5% of group profit last year and the unit’s headcount was a similar share of the total. The investment bank’s activities carry much more risk than ABN Amro’s retail business and require more capital as well, making it costly to squeeze out decent profits in good times.
In the previous quarter, the lender wrote down 460 million euros on two individual client cases, which contributed to its first loss since 2013. Even before the coronavirus crisis, the investment bank fell short of ABN Amro’s 10% to 13% return on equity target.
Other second quarter earnings highlights:
Net interest income EU1.51 billion, -9.9% y/y, estimate EU1.55 billionCommon equity Tier 1 ratio 17.3% vs. 17.3% q/q, estimate 17.1%2Q cost-to-income Ratio 60.4% vs. 67.6% q/q, estimate 62.3%2Q net fee and commission income EU375 million, -9.2% y/y, estimate EU380 million
(Updates with growth ambitions, strategic review and provision figure for German client)
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Capital gains tax hike a sure way to repel the tech sector
Published Apr 18, 2024 • Last updated 23 minutes ago • 4 minute read
If there’s an uncomfortable economic lesson of the past few years, it’s this: The vibes matter.
As much as economists point to data, the reality in politics and policy is that public expectations and perceptions are important too. And from a business perspective, the vibes of the 2024 federal budget are rancid.
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The budget document’s title is “Fairness For Every Generation” and in practice, what that meant was a “soak the rich” tax hike on capital gains.
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You can see how this looked like good politics. In her budget speech, Finance Minister Chrystia Freeland said that only 0.13 per cent of Canadians with an average annual income of $1.4 million will pay higher taxes — hardly a sympathetic lot, at a time when many Canadians are struggling to pay for food and housing.
The problem is that the proposed capital gains tax hike won’t only soak a handful of rich Canadians as advertised. In its current design, it broadly punishes individuals and families of small business owners, tech entrepreneurs, dentists and countless others who have often spent decades trying to build their businesses for a potential once-in-a-lifetime capital gains event. Together, our analysis suggests that those people represent closer to 20 per cent of Canadians.
This tax proposal simply amounts to a systemic tapping on the brakes on the investment in a productive and prosperous future, being made by innovative, hardworking Canadians. And it does so at the very time Canada needs them to accelerate their investing.
But among the innovators and business leaders I talk to in the Canadian tech sector, this week’s budget was a chilling shock. There is a sincere and widespread belief that if something does not change, the budget will do widespread and irreparable damage to Canada’s tech sector.
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That’s why more than 1,000 CEOs have signed a public letter to Prime Minister Trudeau and Deputy Prime Minister Freeland at ProsperityForEveryGeneration.ca, calling on the government to stop this tax hike. Innovators understand what’s at stake.
Firstly, we are at a moment when capital is harder to access than at any time in the past generation. Higher interest rates and economic uncertainty mean that many high-growth companies with innovative products struggle to secure growth capital on favourable terms.
South of the border, we’re seeing strong growth, driven by significant government investment through strong industrial policy, alongside significant growth in bleeding-edge artificial intelligence applications. The U.S. is an exciting place to invest right now.
And capital is highly mobile. If Canada is seen as an unfriendly place to invest, due to high taxes, investors will simply take their money elsewhere, and propel the growth of promising tech companies in other countries.
What’s more, highly skilled talent is more mobile than ever before, and among innovative high-growth companies, stock options — subject to capital gains tax — are a key form of compensation.
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We’re not talking purely about CEOs and tech founders here either. The dedicated early players of a promising tech startup earn their stock options with sweat equity. Their dedication, taking a risk in the prime of their career, is often the key ingredient for the success of future innovation champions.
Innovators are intimately aware of these concerns, because this isn’t the first time the Liberal government has tried to tax stock options. Nearly a decade ago, they promised to hike taxes on stock options in their 2015 campaign platform, and it took years of public advocacy from tech leaders to help the government understand the potential unintended damage that a reckless tax hike could do on the ability to attract and retain talent.
All along the way, we were assured by the government that they knew what they were doing, and there was nothing to worry about. In truth, after many frank conversations, they changed course.
In the days and weeks ahead, I’m expecting to hear the same kind of thing again. Already we’ve heard from government officials pointing to the “Canadian Entrepreneurs’ Incentive” carve-out, which will soften the blow of higher capital gains tax rates overall. The details of this carve-out are not yet fully clear, and it’s possible that the government will tinker with the thresholds to help mitigate the damage of a tax hike on capital gains.
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But the reality is that without a significant change in messaging, the danger to Canada’s economy is real.
Capital gains are taxed at a different rate because they are taxes on investment. Every investment comes with risk; you are not guaranteed to make a profit. The tax code takes this into account.
If the vibes are off, and the global perception of Canada is that we’re not a place where the investment risk is worth it, because the federal government is just going to tax you to death, then we simply won’t see capital or talent flow to Canada.
Innovation and entrepreneurship are about hope. You fundamentally need to be an optimist to risk it all, and invest yourself in growing a business. Right now, Canada’s federal government is not sending a hopeful vibe. And the vibes matter.
Benjamin Bergen is president, Council of Canadian Innovators.
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‘If I try to put myself back into the shoes of me as a 21-year-old, all I can tell you is this: I was hungry,’ writes Gary Stevenson in his recently released memoir, The Trading Game, which tells the story of how the son of a Post Office worker briefly became the highest-paid trader working on Citi’s bond trading floor at London’s Canary Wharf. He sits down with host Claer Barrett to talk about what he learned about trading and how the wider economy works – and why he’s worried.
Find Gary @garyseconomics on YouTube, X, Facebook, Instagram and TikTok. Read Gary Stevenson’s recent FT Magazine profile by Miles Ellingham.
For more tips on how to organise your money, sign up to Claer’s email series ‘Sort Your Financial Life Out With Claer Barrett’ at FT.com/moneycourse.
If you would like to be a guest on a future episode of Money Clinic, email us at money@ft.com or send Claer a DM on social media — she’s @ClaerB on X, Instagram and TikTok.
Want more?
Check out Claer’s column, The hunt for good value UK stocks.
Listen to more episodes, such as Investment Masterclass: An insider’s view of the City of London, Investment masterclass: what’s one of the world’s leading investors buying?, and more.
Presented by Claer Barrett. Produced by Tamara Kormornick. Our executive producer is Manuela Saragosa. Sound design by Breen Turner, with original music from Metaphor Music. Cheryl Brumley is the FT’s global head of audio.
How much a stock’s price changes over time is important for most investors, since price performance can both impact your investment portfolio and help you compare investment results across sectors and industries.
The fear of missing out, or FOMO, also plays a factor in investing, especially with particular tech giants, as well as popular consumer-facing stocks.
What if you’d invested in Micron (MU) ten years ago? It may not have been easy to hold on to MU for all that time, but if you did, how much would your investment be worth today?
Micron’s Business In-Depth
With that in mind, let’s take a look at Micron’s main business drivers.
Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions.
Through global brands, namely Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. Its solutions are used in leading-edge computing, consumer, networking and mobile products.
A major portion of the revenues is derived from DRAM sales. The company’s mission is to be the most efficient and innovative global provider of semiconductor memory solutions.
Micron reported revenues of $15.54 billion in fiscal 2023. The company has four reportable segments:
Compute and Networking Business Unit (CNBU): The unit comprises of DRAM and NOR Flash products that are sold to the computer, networking, graphics, and cloud server markets, and NAND Flash products which are sold into the networking market. CNBU delivered revenues of $5.71 billion (37% of total revenues) in fiscal 2023.
Mobile Business Unit (MBU): The unit comprises Micron’s discrete DRAM, discrete NAND and managed NAND (including eMMC and universal flash storage (UFS) solutions) products that are sold to smartphone and other mobile-device markets. MBU generated revenues of $3.63 billion (23%) in fiscal 2023.
Storage Business Unit (SBU): The unit accounts for solid state drives (SSDs) and component-level solutions sold into enterprise and cloud, client and consumer storage markets as well as other discrete storage products sold in component and wafer forms to the removable storage markets. SBU’s revenues grossed $2.55 billion (16%) in fiscal 2023.
Embedded Business Unit (EBU): The unit includes Micron’s discrete DRAM, discrete NAND, managed NAND and NOR products, which are sold to the automotive, industrial and consumer markets. EBU’s revenues logged $3.64 billion (24%) in fiscal 2023.
The company struggles with intense competition from Intel, Samsung Electronics, SK Hynix, Toshiba Memory and Western Digital Corporation.
Bottom Line
While anyone can invest, building a lucrative investment portfolio takes research, patience, and a little bit of risk. If you had invested in Micron ten years ago, you’re probably feeling pretty good about your investment today.
According to our calculations, a $1000 investment made in April 2014 would be worth $5,416.81, or a gain of 441.68%, as of April 17, 2024, and this return excludes dividends but includes price increases.
The S&P 500 rose 171.24% and the price of gold increased 76.28% over the same time frame in comparison.
Looking ahead, analysts are expecting more upside for MU.
Micron’s better-than-expected second-quarter performance reflects gains from improved market conditions, strong sales executions and double-digit growth across multiple business units. The positive impact of inventory improvement in the data center, as well as stabilization in other markets, such as automotive, industrial and others, have also contributed to its results. It anticipates the pricing of Dynamic Random Access Memory (DRAM) and NAND chips will keep increasing next year, hence improving its revenues. The pricing benefits will primarily be driven by rising AI server causing a scarcity in the availability of cutting-edge DRAM and NAND supply. The 5G adoption in the Internet of Things devices and wireless infrastructure is likely to spur demand for memory and storage.
Over the past four weeks, shares have rallied 29.54%, and there have been 7 higher earnings estimate revisions in the past two months for fiscal 2024 compared to none lower. The consensus estimate has moved up as well.
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