ABN Amro Net Income Rises 31%, Helped by Sale of Unit

April 16 (Bloomberg) -- ABN Amro Holding NV, the target of the largest takeover battle in the banking industry, said first- quarter profit increased 31 percent, helped by a gain from the sale of its U.S. mortgage business.
Net income rose to 1.31 billion euros ($1.78 billion), or 71 cents a share, from 1 billion euros, or 53 cents, a year earlier, the company said in a statement today. Earnings were boosted by a 97 million-euro gain from the sale of its U.S. mortgage unit and a seven-fold jump in income at the European division.
Amsterdam-based ABN Amro published earnings 10 days early as Barclays Plc and a group led by Royal Bank of Scotland Group Plc compete to buy the company, the largest Dutch bank. Chief Executive Officer Rijkman Groenink said earnings are ahead of the company's full-year goal of 2.30 euros per share.
``ABN Amro wants to send two messages by reporting earnings early,'' said Dirk Peeters, an analyst at KBC Securities in Brussels, in a telephone interview. ``First, 2007 will be a year of delivery. Second, any bid should reflect the good results.'' Peeters recommends investors ``accumulate'' the shares.
Royal Bank of Scotland said April 13 it may offer to buy ABN Amro with Santander Central Hispano SA and Fortis. The Dutch bank, which last month started exclusive talks with Barclays, said the three companies have asked it for ``exploratory talks'' and for access to the same information given to Barclays.
Shares Rise
Shares of ABN Amro rose 2.12 euros, or 6.3 percent, to 35.77 euros at 14:17 p.m. in Amsterdam, valuing the company at about 68 billion euros. The stock, which trailed European competitors for most of the past five years, has gained 31 percent since March 16, the last trading day before Barclays, the No. 3 U.K. bank, first announced its approach.
``We believe there is a chance of more joint bids coming to the market,'' London-based analysts at Keefe, Bruyette & Woods Ltd. including Jean-Pierre Lambert wrote in a note today. ``An optimal consortium could generate an offer price of more than 45 euros per share,'' they said. KBW raised its price target on ABN shares to 39 euros from 37 euros and has an ``outperform'' recommendation on the stock.
A purchase of ABN Amro would give the buyer access to some 4,600 branches in 53 countries, with the Netherlands, Italy, the U.S. Midwest and Brazil being ABN's Amro's largest markets. The bank generated half its revenue from interest income last year, a quarter from commissions and most of the remainder from trading and investment banking.
Hedge Fund Pressure
TCI Fund Management LLP, the London-based hedge fund that called for a breakup of ABN Amro before the negotiations with Barclays emerged, said in an April 13 statement that it welcomes the approach from the Royal Bank group.
``It is our expectation that this approach will be considered friendly'' and ABN Amro should provide the new suitors with the same information that it gave Barclays, said TCI Managing Partner Christopher Hohn.
ABN Amro has struggled to control burgeoning expenses tied to last year's acquisition of Italy's Banca Antonveneta SpA and provisions for risky loans. In the past year, Groenink shed ABN Amro's futures business, the Bouwfonds property management units and the bank's U.S. mortgage servicing operations. The company also scaled back its investment banking activities last year.
Operating expenses rose 6 percent last quarter to 3.99 billion euros, compared with a 10 percent increase in operating income, to 5.99 billion euros, the bank said. Loan impairment provisions rose 27 percent to 417 million euros.
Royal Roots
Profit at the Dutch unit fell 4.8 percent to 299 million euros. At the Europe division, excluding Antonveneta, earnings increased to 131 million euros from 18 million euros. Profit at the Latin American unit rose 34 percent to 177 million euros.
The extra yield, or spread, investors demand to buy ABN Amro's 1 billion-euro 4.31 percent perpetual bonds instead of government debt fell 2 basis points to 98 basis points as of 1:29 p.m. in London. The spread on the bonds fell from 115 basis points on March 16, according to RBC Capital Markets prices
ABN Amro also said today that is ``exploring all possible options'' to resolve ``ongoing criminal investigations relating to its dollar clearing activities, OFAC compliance procedures and other Bank Secrecy Act compliance matters.''
ABN Amro has roots stretching back to a trading company set up by King Willem I in 1824. The present bank was created by the 1991 merger of Algemene Bank Nederland NV (ABN) and Amsterdam- Rotterdam Bank NV (Amro).