Dutch courage unnecessary

ABN Amro's IPO could prove sweetly timed

ABN Amro, the poster child of the financial crisis, has almost grown up. The state-owned Dutch bank on August 21 reported a near-doubling of second-quarter earnings from a year ago to Euro 600 million ($675 million). Chief Executive Gerrit Zalm says ABN is on track to sell up to 30 per cent of its stock back to private investors in the fourth quarter. Timing is on his and the government's side.

An encouraging start is ABN Amro's improved second-quarter showing. The provisions the bank took to cover future bad loans fell 90 per cent year-on-year to just Euro 34 million, helping earnings in the first half rise strongly, and its annualised return on equity to hit a solid 15.3 per cent.

It will take more than that for Dutch taxpayers to get their money back. The state nationalised ABN in 2008, and has paid a total of Euro 21.7 billion for the domestic business of Fortis as well as ABN's Dutch, private banking and clearing divisions. The government has said the bank is currently worth about Euro 15 billion, just under its just-reported book value, suggesting a paper loss of about a third on the initial share sale. To break even, the bank would need to fetch a valuation of 1.4 times forward book value - higher than rival ING, which trades at 1.2 times.

There is, however, a parallel with Royal Bank of Scotland, the UK lender put into state ownership in 2007. The British government completed its first selldown in RBS shares earlier this month. The amount raised was similar to the amount the Dutch state is seeking, and it was also about a third lower than the UK taxpayer's average in-price.

As with RBS, such numbers aren't totally helpful. Saving ABN from failure may have paid other less easy-to-measure economic dividends. The International Monetary Fund forecasts steady growth in the Netherlands' GDP of 1.6 per cent for this year and next.

That suggests now is a good time to sell. A buoyant housing market, lower unemployment and improved consumer confidence are also helping domestic peers Rabobank and ING. ABN looks healthy, with a common equity Tier 1 ratio of 14 per cent, and a pledge to pay 40 per cent of earnings in dividends. A return to the market should put ABN's troubled past comfortably behind it.