Magic Tricks with Gerrit Zalm
Pfäffikon SZ, Switzerland – ABN AMRO is very keen on making a public offering. The bankers from the “Zuidas” want more than anything to be relieved from the sucking civil servants with tricky questions. For CEO Gerrit Zalm it would supposed to be the crowning jewel. Finally, a decent salary as well as bonus and a car with chauffeur. Would Zalm ever call up his buddy from the perished DSB bank? The DSB Bank has become the ultimate thieves den for liquidators, but this as an aside. And Gerrit Zalm? Zalm moves around the financial world as a chameleon.
Swap risk
I can remember very well that in the nineties mainly institutional investors were distancing themselves from bank shares. The reason being that according to these institutes the banks would not provide sufficient returns. More than 25 years later banks, like none other, are wrestling with their business model which is crumbling at an alarming pace.
In the mean time Gerrit Zalm is performing some magic tricks on the ABN AMRO numbers to subdue the Dutch parliament. Moreover the intention is to interest investors in the bank. Zalm recently presented profit figures that were impressive. On the face of it ABN is performing outstandingly. When we take a closer look we see that the numbers have been inflated by the free money valve from the ECB. Moreover, they are moving around their contingency fund and ratios are being polished. With a balance sheet like that of the ABN AMRO it is a piece of cake to present figures with a smile.
But what’s the deal with the bank’s swap risks? ABN AMRO and its accountant KPMG do not provide enough insight on this swap risk and what kind of impact it would have on the bank’s solvability. In this regard I would point out various housing corporations. Moreover the bank is incurring costs which are unheard of in order to wring entrepreneurs who have hit a rough patch due to the credit crisis. These costs are carefully swept under the rug.
Bad deal
From the perspective of the Dutch tax payer I would not yet sell the ABN AMRO bank. Pumping in 28 billion into a bank only to withdraw 17 billion afterwards is, according to my simple calculation, a very bad deal. It’s cute of the Finance Minister – Jeroen Dijsselbloem – to sneak away the losses in the Dutch national debt and to claim that the impact for the Dutch tax payer is currently naught.
Apparently Dijsselbloem has not learnt from his illustrious partymember the late Joop den Uyl, founding father of the Dutch out-of-control debt burden. The impact might be naught for the moment because of the negative interest rates, but Dijsselbloem’s children will see the national debt increase by about 11 billion euro and will need to pay that back sooner or later as well as pay interest over it. The reader knows how Greece is handling that today.
Homework
From my perspective I will never, ever, join in on a public offering of the ABN AMRO bank. Ik have read (too) many yearly reports from financial institutions and have found only three worldwide that I have found attractive and robust enough as an investment. Unfortunately there is no Dutch financial institution in that list. In the case you would like to participate in the ABN AMRO IPO I would advise you to do your homework in order to unravel the magic tricks performed by Zalm. Be sure not to listen to your loyal bank clerk, because he could possibly be wearing two hats.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
