ABN Amro flags possible money laundering fines in latest blow to shares

By Bart H. Meijer

AMSTERDAM (Reuters) - ABN Amro <ABNd.AS> said it faces possible money laundering fines, which combined with a gloomy interest rate outlook overshadowed an unexpected quarterly profit rise, knocking the Dutch bank's shares on Wednesday.

The Dutch central bank (DNB) has ordered ABN to review all retail clients in the Netherlands for possible money laundering or other criminal activities, and warned that these investigations could lead to fines for the bank.

Banks have been forced to keep better track of client behaviour after Dutch bank ING <ING.AS> was forced to pay a record $900 million fine in September for failing to spot criminal activities financed through its accounts.

Beyond the Netherlands, Denmark's Danske Bank <DANSKE.CO> is involved in a money laundering scandal in Estonia, and Germany's biggest, Deutsche Bank <DBKGn.DE>, also faces money laundering allegations.

ABN said it took extra measures to increase customer due diligence at a cost of 114 million euros (£105.04 million) in the second quarter, and has now dedicated more than 1,000 employees to the fight against money laundering.

"Across the bank, we will take all remedial actions necessary to ensure full compliance with legislation", Chief Executive Kees van Dijkhuizen said.

PROFIT BEAT A SIDE ISSUE

Despite the extra expenses, ABN reported a 1% rise in second-quarter net profit to 693 million euros.

That topped the 638 million euros analysts had expected, according to a company-compiled poll, and was up from 688 million a year earlier.

But ABN shares were down 3% to 16.06 euros at 0947 GMT, after having already lost 40% of their value since reaching a 28 euros peak on Jan. 12.

"The results are a side issue here", KBC Securities analyst Jason Kalamboussis said, highlighting potential money laundering fines and further fallout from the investigations.

"Add a strong net interest income warning and a lower than expected interim dividend and this does not bode well for the next 12 months", the analyst said.

ABN said low interest rates would put pressure on future earnings, as it now expected them to shave off 20 million euros of net interest income per quarter until the end of next year.

The bank had previously forecast a 10 million euro quarterly reduction in interest earnings due to low rates.

Lower interest income and rising regulatory costs have also made the bank's target of reaching a cost-income ratio of 56-58% next year look "challenging", Chief Financial Officer Clifford Abrahams said.

ABN kept its interim dividend in line with last year's, but said it would consider increasing shareholder rewards as its capital buffer remained strong in the second quarter.

(Reporting by Bart Meijer; editing by Sherry Jacob-Phillips, Jason Neely and Alexander Smith)