ABN Amro awaits privatization plan

Aug 23, 2013, 5:58 AM EDT

AMSTERDAM (AP) — The Dutch government is set to unveil Friday its plan for reprivatizing ABN Amro NV, the bank that was nationalized in 2008 to prevent a meltdown of the financial system.

The government is expected to announce it will float shares in ABN, though not before 2014 and at a big loss for the taxpayer. The nationalization cost an estimated 32 billion euros, while estimates of the bank's current market value vary widely, from 10-20 billion euros.

The bank has been restructuring aggressively under the state's stewardship — it cut jobs and sold off foreign units to refocus on the domestic market. The problem is that the Dutch economy is currently in recession, hurting the bank's earnings prospects — and its potential market valuation.

ABN earlier Friday reported that second quarter earnings rose to 402 million euros ($537 million) from 337 million euros in the same period of 2012, but that was mainly thanks to fewer one-off impairment charges in the most recent quarter.

CEO Gerrit Zalm warned that bad loans are rising amid the Dutch recession, which has now passed the one-year mark. He said small businesses are suffering the most.

"A growing number of businesses that managed to weather the decline in revenues for a number of years are now reaching the end of their reserves," Zalm said. "We expect loan impairments for 2013 to rise above last year's level as the economic conditions in the Netherlands are set to remain challenging for the remainder of 2013."

Mortgage defaults are also rising, he said, though steep declines in real estate prices are tapering off.

One positive was that consumers are saving more. The influx of retail savings provides a cheap source of funding for ABN, which then lends the money on at a higher rate. That helped net interest income rise to 1.36 billion euros from 1.28 billion in the same period a year ago.

Despite the recession, the Dutch government is set to announce a new round of austerity measures next month in an attempt to bring its budget deficit below the 3 percent maximum mandated by European rules.

The Dutch government has been one of the strongest backers, along with Germany, of enforcement of those rules and of austerity policies for Southern European nations. However, similar measures have proved unpopular at home, and the government's own independent Bureau for Economic Analysis says that more spending cuts will likely do more harm than good.

It is not clear whether Prime Minister Mark Rutte's Cabinet will be able to pass an austerity budget, as his centrist coalition lacks a majority in the upper house of parliament. However, Rutte repeated Thursday that he was "confident" the budget, which has yet to be revealed, would succeed.

Finance Minister Jeroen Dijsselbloem endured a torrent of criticism Thursday after a newspaper report suggested he agreed with German counterpart Wolfgang Schaeuble that Greece will likely need a new bailout next year.

Opposition parties pounced on the remarks to question why the Netherlands has extra money to fund a Greek bailout while Dutch taxpayers are being forced to make new sacrifices at home.

But the government ignored calls for a debate on the matter and Dijsselbloem later clarified he hadn't promised Greece will be bailed out again.

Proceeds from privatizing ABN Amro will not count toward the Netherlands' structural budget deficit or surplus, however they will make some impact on national debt, estimated at 74.5 percent of GDP in 2013.