ABN Amro cuts back wholesale banking as profits dip

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ABN Amro, the Netherlands' largest bank, yesterday took a breather in its bid to build a dominant franchise in investment banking, after it signalled a dramatic reduction in its wholesale banking activities.

The bank said it was cutting the amount of capital allocated to investment and corporate banking by 20 per cent over the next three years, in response to the economic slowdown and stock market weakness. It also dropped its pledge to grow investment banking revenues by 20 per cent.

The news accompanied figures showing a 65 per cent year-on-year drop in second- quarter wholesale banking net profits, to 106m euros (£71m). Overall, group second quarter net profits fell 21 per cent to 671m euros, narrowly ahead of analysts' expectations, as retail banking, wealth management and asset gathering offset the poor wholesale performance. On the first quarter, profits were down only 1.8 per cent.

Rijkman Groenink, ABN's chairman, said: "Our aspirations with respect to [wholesale banking] must be in line with the reality of the situation."

The group's corporate finance activities would continue relatively unaffected. "Incremental investment in other areas of investment banking will be selective," it said.

The focus would now be on retail banking and asset gathering in Europe, with the bank withdrawing from 11 countries, mainly in Latin America. As part of the reorganisation, the firm's management board is being cut from ten members to seven. The move reverses an expansion in a strategic review instigated by Mr Groenink in May last year.

ABN, which has announced 1,500 job losses this year, declined to set fresh financial goals. "[Targets] would have to be adjusted constantly to reflect shifts in the relative financial and total return to shareholders of our competitors," Mr Groenink said.