Edited Transcript of VLAN.AS earnings conference call or presentation 26-Aug-20 7:00am GMT

If you then look at asset growth and AuM growth, organic growth has been also very strong, both on the financial institute side as well as on the private side. So we’re very pleased with that. And on top of that, I think, which we announced a little more than — last week, the acquisition of Hof Hoorneman and were absolutely pleased and, in fact, very happy that we were able to acquire Hof Hoorneman. It’s a fantastic addition to it. And I think both in terms of the franchise, the types of AuM they have and the type of people are a great addition to what we have. So I think we’re very pleased on that count.

And finally, COVID. Now COVID is here, and will be here for a while this day. And we have adjusted to that reality, and I think all of the investments that we made in the past in omnichannel and other IT-driven investment actually allowed us to operate almost seamlessly from home and other settings and, in fact, serve our clients and be there in their times of need. So this has actually has served us very well. As you know, or perhaps some of you know, that we went earlier into lockdown than most in anticipation of what really came to pass. And I don’t think that without the investments in omnichannel and other IT aspects, which we’ve done in the last 6, 7 years, we would have weathered this storm as well as we have. Now the storm is in the form, not just the literal storm that we have today, but also the — I’m referring to the COVID storm and the impact on the overall market, combined with geopolitical issues, still will continue to dominate the landscape in the coming months and probably the next year, 1.5 years. But from our own franchise perspective, our people and who we are, we’re prepared to weather this storm and serve our clients well.

So net-net, I think if you look into it, across the board, whether it’s in Private Banking, whether it’s in Asset Management, whether it’s in Merchant Banking or whether it’s in Evi, it’s all-round good set of numbers, strong balance sheet, strong asset quality, fantastic asset growth, AuM growth, both organic and inorganic. So these are actually pretty happy set of numbers. I don’t want to go overboard, but I must say that I’m not normally given to exuberance but I’m really very happy.

But — and on that note, I will pass it on to Constant, who will go into the details.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. – CFO, Chief Risk Officer & Member of the Executive Board [3]

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Okay. Thank you, Karl. I would like to take you through some pages of the slide deck that was provided this morning, starting on Page 6, actually. Well, maybe a quick refresh on the markets of the first half.

You probably all know, but we saw a huge dip in equity markets in March as a result of COVID and a spike in volatility. And of course, interest rates are low and are even lower in the first half and negative to some extent.

That being said, on the next page, let me highlight some elements of the first half of 2020. Our wealth management model works, as Karl already mentioned, strong inflows, in total, EUR 4.7 billion in AuM and savings, out of which EUR 800 million at the Private Bank and EUR 3.8 billion at Asset Management. Relatively low addition to loan losses, thanks to our model and our low-risk profile. And fortunately, also, we saw that despite all market turmoil, we saw a continuous deal flow at Corporate Finance and ECM. I will come back on it later. That being said, current market census do have an impact on us. Of course, there was an impact on AuM and therefore also on our commission. We had to report the losses on our product activities. We’ll come back to that later. And also, we have to deal with losses on our co-investments.

Talking about the organization, we’re very proud of our organization in the first half. We weathered the storm well as an organization. A lot of people, almost 90% of our staff, are working from home. But we are able to serve our clients continuously. And in the meantime, also, we were able to complete the work to migrate the Belgian infrastructure and architecture to that of the group, which is also a big achievement and a big step forward.

Capital ratio, already mentioned by Karl, 24%. We have to deal with the recommendation of the ECB, not to pay dividends until January 2021. And also mentioned by Karl, we have announced the next steps in our inorganic growth strategy, the acquisition of Hof Hoorneman, but on top of that also we concluded in the last quarter, the partnership with a.s.r., bringing in EUR 157 million of AuM at Evi.

Talking about inorganic growth. Let me also remind you on the Hof Hoorneman transaction on the next page. It was announced last week. We are very pleased with that. It’s an excellent fit in terms of business model because they basically have a private banking operation, also an online investment operation, like our Evi, and they have a number of investment funds. So it fits very well with our model. A big step forward in number of clients, 4,600 clients, EUR 1.9 billion of client assets. So we expect a lot from this transaction. We have to apply for the approval of the Dutch Central Bank. So we expect to close the transaction probably late 2020, early 2021. And this transaction comes in a series of transactions that we have shown over the last few years where we acquired style — where we acquired the Dutch activities of UBS. I already mentioned the arrangement with a.s.r. So this is the next step in that (inaudible). We’re very pleased with that.

Now let me go to the numbers for the first half, and you’ll see that on Slide 9. Net result for the first half, EUR 9.5 million. We, earlier, reported a loss for the first quarter of EUR 10.5 million, which means that the result for the second quarter is in the bottom line EUR 20 million net result, which we’re very happy with.

Looking at commissions for the first half and compared to last year, 5% up. And on the other side, interest income, down by 9% compared to last year.

Expenses. We — earlier in the year, we said that we expect a small uptick in expenses. However, with COVID late March, early April, we decided to take a number of cost-saving measures. That’s visible in the numbers now, minus 2%, when you compare to last year.

Client assets, slightly up despite a negative market performance, but inflows result in a small increase of our client assets. And inflow, as already mentioned, EUR 4.7 billion.

Capital ratio is strong. And when we look at our loan loss provisions, we only show a very limited addition to loan loss provision of EUR 1.3 million, which equals to 6 basis points of RWA weight.

On the next slide, you’ll see the full P&L. I won’t dwell too much on it because we will come back on most items. I would like to remind you that last year, in 2019, we had a number of book profits, which have adjusted the P&L, just to make the comparison easier. So these were the book profits of the stakes in AIO II and VLC & Partners. So this is taken out of the 2019 numbers. Also, last year, we still had a strategic investment program, see that line item for 2019. As planned, that strategic investment program was discontinued end of last year, so that’s no longer in our P&L. And the investments we have to make in digital innovation are now part of the regular cost base.

Then on the next slide, Slide 11, you see the main difference when you compare 2019 to 2020. I already mentioned commission’s up; interest, a little bit down. The biggest item is the block other income. That includes the losses on our structured products and also some other financial results. We will come back on that later.

You also see that loan loss provisions is a minus of almost EUR 9 million. That has something to do with the fact that in the first half of 2019, we saw a net release of loan loss provisions of EUR 7.5 million. Now this period, we show a net addition of EUR 1.3 billion. So it has more to do with last year than with this year.

Then going more into detail of our business lines and starting with the Private Bank. The Private Bank showed a result that’s comparable to last year. We see more commissions in the Private Bank. We see also an increase of transaction volumes, resulting to higher commissions, in particular, in the period of March, April. At the same time, we saw, last year, in the Private Bank, quite some release of loan loss provisions. That’s what we don’t see this year. That’s why the result is at the same level, more or less.

Very pleased with the net inflow we see at the Private Bank, in total, EUR 0.8 billion, out of which EUR 0.5 billion in assets under management and EUR 0.3 billion in savings money. The assets under management, that’s predominantly an increase in the nondiscretionary part of the Private Bank. The discretionary part of the Private Bank is more or less stable.

On the next slide, I would like to highlight an important achievement in Belgium. As you know, over the last years, we made a lot of investments for our Dutch client base in omnichannel, and the next project was to also bring that to Belgium. And as of early July, we migrated our Belgium clients and also Belgium colleagues to the same platform, which will result in an enhanced client experience for our Belgian clients. But also very important, we avoid IT maintenance costs in the future. So this is a very important project that has been completed now.

Moving to Asset Management on Slide 14. Asset Management shows higher profit compared to last year, mainly due to higher commission income. We see also, in the first half, a strong inflow, EUR 3.8 billion, that includes EUR 3.1 billion in the fiduciary part of Asset Management and that includes 2 large new mandates we got in. And also we see inflows in our strategy part for EUR 0.7 billion. Also for the second half, we have some new fiduciary mandates planned for. So this is a very positive development. And in fact, the AuM of Asset Management was growing in the first half despite the market circumstances.

Taking on the next slide, Private Banking and Asset Management together and looking at, what I would call, the annualized recurring management fees because that’s an indication of our book of business when you move into more the fee-earning potential. If we look at that, then we see that last year, so 2019, the annualized recurring management fee went up by 16%. Of course, the first quarter as a result of markets, we saw a decline of 13%. And now in the second quarter, we see an increase again of 8%. So a strong recovery of the decline of the first half. So that basically gives you an indication of what happened with our commission base.

In the appendix, you also find the development of the margins, which I think can be considered sort of stable throughout this period.

Moving to Evi. Evi results are slightly higher, but still a small negative, EUR 0.4 million over the first half. Total assets are now EUR 1.6 billion, out of which more than EUR 1 billion is in AuM. We saw the inflow of the former a.s.r. clients in the first half that adds 7,000 clients to the Evi base. And as I noted before, we expect further growth of Evi from the integration of Hof Hoorneman next year because also they have an online investment option, which will be part of Evi going forward.

Then the Merchant Bank on Slide 17. Notwithstanding the fact that capital markets came to a, sort of, standstill in March, April. Basically, what we saw is that deal flow restored quite quickly. And over the first half, we were able to complete, in total, 16 transactions, or deals, of which a significant part, also, is in our life sciences franchise.

All in all, if you look at the commission base for the Merchant Bank over the first half, the number is almost exactly the number as we saw in 2019. So despite COVID and everything that it did with the markets, we were able to hold on to our commission levels as we saw last year.

On the left-hand side, you see the net result of the Merchant Bank. That net result is, of course, determined by a significant loss in our structured product book. We will come back on that later, but that’s basically what is coloring that part of the P&L.

Moving to interest margin. What we see is that our interest margin remains under pressure. That has something to do with the decline of our corporate book, but also with the low yield environment. We’re pleased to see that our mortgage book is growing. However, at the same time, also, we see that the margins on our merchant book are lower than we’ve seen before.

On Slide 19, that’s a slide that shows the income from securities and associates, that basically includes results on our participations and private equity investments, but also our co-investments in our own products. Looking at the participations that we hold directly or via Bolster, there, we see stable results. However, in the co-investment part, in our own products, we already reported that, that’s been affected by the markets in the first quarter. And now, over the first half, you see a net result of minus EUR 11 million on this slide. You have to adjust that for the hedge result, which is on a different line item, that brings you to a net-net result on our co-investments of minus EUR 6.5 million. That does not reflect, let’s say, the bounce back that we have seen in the markets. However, that also has something to do with the specific investments we hope in this book, in particular, positions in our real estate funds and some of the value type of products.

On the next slide, you see the result on financial transaction that includes hedges, but also includes the results on the structured product activities. And basically, the numbers that you see on the slide are to a very large extent, determined by that element of the structured products.

For the first half, we now report EUR 27.3 million loss on the structured products. In the first quarter, it was almost EUR 22 million. So we reported an another additional loss on structured products.

And let me take you to that element a little bit more in detail. Well, we explained it after the first quarter, just to remind you, the structured products are basically company issued debt with embedded derivatives, which we sell to our Private Banking clients. For these clients, it’s an important product because it offers an alternative instrument, which is basically very well used for our Private Banking clients.

The risk of these products are on taken on our own balance sheet. And we apply macro hedging with respect to these positions, and that means that the hedges are effective in the most market circumstances. However, that wasn’t the case in March when big market dislocations resulted in a bridge of the underlying correlation and also caused ineffectiveness of the hedge. That meant that in Q1, we realized a loss of almost EUR 22 million. What we observed in the second quarter is that the expenses related to hedging the positions, but also what happened in April is a further decline in dividend expectations, which is an important element in the model resulted in an additional loss of EUR 5.5 million.

Of course, we are reviewing how to move forward with structured products. And we will continue to offer structured products to our Private Banking clients because it’s an important element in the portfolios of our clients. However, as a wealth manager, we also want to have a low-risk profile. So we will adjust the model for which we offer structured products and in the second half, we will decide on how that model will look like.

Then on Page 22, we have the cost-saving measures. As you see, the costs are down by 2% compared to 2019. Earlier in the year, we indicated that as a result of new labor conditions, we would expect a slight uptick of our cost base. However, we took measures late March, early April. Also expenses are somewhat down because of variable compensation that is, to some extent, linked to the P&L, is down. So that result in a — that resulted in a slightly lower cost base.

It’s also important to note, as I mentioned before, we don’t have a strategic investment program anymore. So all costs related to digital and innovation are now part of our regular cost base and are basically included in the numbers you see on this slide.

Moving to our loan portfolio. Well, positive developments on a number of lines. First of all, we see an increase in our mortgage book. So we see still, growth in appetite of our target client groups to take a mortgage from us. At the same time, we see the corporate bank, which we are running off, we took further steps. So now it’s only EUR 246 million that is left in our corporate bank. And also important to note that the impact ratio came further down. And basically, the total impaired loans are now down from EUR 234 million to EUR 187 million. And also important to note that in that decline, also a significant decline of impairment loans in the corporate bank is taking place, minus 38%.

That also is reflected in the loan loss provision numbers that are shown on Page 24. Net-net, in the first half, we added EUR 1.3 million to our loan loss provisions. That includes an increase of our stage 1 provisions, which are driven by macroeconomic scenarios. But basically, we see in stage 3, no big issues at this point in time. And I would like to reiterate again that we have very little exposure to sectors that are impacted by corona, which basically is also visible in these numbers.

Our capital position, a slight increase of our CET1 ratio to 24%. And as you know, the target is between 15% and 17%. The dividend 2019 is postponed. However, we asked the AGM to approve the dividend, which happened. And that means that it’s on our balance sheet. It’s not being transferred back to our regulatory capital. And we will — we expect that we can pay the dividend as soon as market circumstances and regulators will allow us to do so. But based on the current knowledge, we know that payments will not be earlier than January 2021.

Our capital strategy is basically unchanged. We will continue to optimize our capital base, but also keeping room for possible acquisitions. At the same time, if possible, we might consider paying out excess capital to shareholders, which is, of course, always subject to approval by the regulator.

On the next slide, you see the overview of our targets. Of course, efficiency ratio and return on common equity Tier 1 are determined by what happened in the first half. So there, you see that it’s a little bit part of the trends we’ve shown before. Of course, equity capital is still strong, and dividend is something we can talk about later.

So overall, let me conclude. After a first quarter, which was driven by some incidentals, we are pleased with the financial performance of the second quarter and that basically, we are back on track. Flows from clients are very healthy. And we’re pleased to see that our wealth management model is proving itself extremely well in these turbulent times.

That’s the way I want to leave it. I would like to hand it back to Karl.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [4]

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Thank you, Constant. I think it’s — the time is right now to actually go into Q&A. So I think there is a well-known procedure that you have to follow in order to register your questions. And for that, I wish I’ll hand it over to my colleague, [Tosca].

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Unidentified Company Representative, [5]

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Yes. Let’s start with the questions.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [6]

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So now you’re free to ask, and the operator will guide you through that process.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from the line of Cor Kluis from ABN AMRO.

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Cor Kluis, ABN AMRO Bank N.V., Research Division – Analyst [2]

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Cor Kluis, ABN AMRO. A couple of questions. Yes, a couple of questions. First of all, on expenses, which were a little bit better than expected. Could you elaborate a little bit more on how structural that is? And what have you exactly done? You see the comments on variable pay, et cetera? And related to that, could you give some full year guidance? I thought previously it was more EUR 390 million, EUR 400 million, but with this cost line, you probably are below EUR 390 million for the full year. So if you can, on the cost line.

And secondly, on IFRS 9, we’ve seen some peers, even some peers like Volksbank, who only have mortgages and even those banks still took some higher loan loss provisions due to IFRS 9. It’s just accounting, but still. (inaudible) quite low despite IFRS 9. What is different? Or could you elaborate why you don’t see that accounting anomaly having impact on your loan losses. Is that because you have more wealthy clients or something related to that?

And my last question is about structured notes. So in the press release presentation, of course, that in the second half, you will decide upon how you will do that. Could you give you considerations what can bring to your — to the decision. There’s some impact, of course, if you outsource it? Or do you see yourself? Or do you think about offering different kind of products? That’s my questions.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [3]

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Thank you, Cor. I will hand it over to Constant, but before I do, I would do — on one point I completely disagree with you, and that is considering Volksbank as a peer bank. But with that, I shall pass it on to Constant.

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Cor Kluis, ABN AMRO Bank N.V., Research Division – Analyst [4]

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Sure. I only refer on the mortgage, you said that they also have mortgage exposure like you have.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. – CFO, Chief Risk Officer & Member of the Executive Board [5]

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But even there, you can argue about that, but okay. Your first question, come back to expenses. What we did is basically put in place a hiring freeze. Also, cut back on temporary staff. Of course, also reduced marketing spending and travel spending. Of course, the last one is, I think, easy given, let’s say, the current circumstances. But also, we cut back on our IT program. So a number of steps that were taken. It’s difficult to say to what extent it’s structural. But of course, we also learned how to work in these circumstances. So I would also expect that some of the experiences we have over the last few months will stay around. So we have to see.

And at this point in time, I won’t give a full year guidance on this, but the — well, basically, the expense reduction measures we took in March, April, they are still in place as of now. So we’ll keep a tight lid on that.

With respect to IFRS 9. Yes, I understand your question. In stage 1, we did apply the macroeconomic scenarios that you also see at other banks. So that’s quite comparable. At the same time, what we observed at this point in time, in our loan portfolio, that there’s no increase in arrears. In fact, we saw even a small decline over there. So that’s also determine the numbers. And what you see in stage 3 is that we don’t have any major issues. And even, let’s say, out of the former provisions that we have, some items were cured. So that determines the overall numbers. So I don’t think we take a different stance than other banks, in particular, also, when it is about the scenarios we use. The only thing is that in our portfolio, we see that, at this point in time, no major issues are there in terms of arrears.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [6]

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I think you could say that the underlying asset quality is — I mean, I think what it says is that if we apply the same criteria and the outcome is what it is, then that implies that the underlying asset quality is better.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. – CFO, Chief Risk Officer & Member of the Executive Board [7]

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With respect to structured products, Cor, what I already mentioned, we would like to offer these products to our — to keep offering these products to our clients, but we would like to do it in a lower risk profile. Well, that brings you to, let’s say, a situation where you can just buy it from the shelf from somebody else, or you could do it on your own balance sheet still but have a back-to-back risk hedging, which basically moved from macro hedging to macro hedging. We are balancing the pros and cons of both models, and we will probably decide in the coming months on that.

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Operator [8]

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Next question is coming from the line of Benoit Petrarque from Kepler Cheuvreux.

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Benoit Petrarque, Kepler Cheuvreux, Research Division – Head of Benelux Equity Research [9]

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So several questions on my side.

The first one on the capital story. I mean, correct me if I’m wrong, but you put that, you are considering paying the excess capital to shareholders. I mean, it’s a little bit more clear than before. I mean, I don’t think you’ve put that in the slides in the presentation before. I remember last quarter, you even mentioned the excess capital of EUR 290 million at the end of Q1. So I just wanted to check with you if your turn towards the capital story has changed slightly. It seems that you’re more vocal on paying this excess capital eventually. So I wanted to check with you what is your, kind of, balance between M&A budget versus kind of real excess capital for shareholders on the other side? And what do you need to do to convince regulators to approve a large payment of this excess capital to the shareholders, what needs to happen, because that’s — I mean, you have been paying especially in the past. But obviously, you — like we mentioned, at the end of Q1, you have EUR 290 million of excess capital. So that’s a much larger figure than what we have seen before.

The second question is actually on Evi. It’s still loss-making slightly, which we understand it. I mean, you’ve been — it’s a ramp-up phase. But do you think the Hof Hoorneman acquisition could turn Evi in the green, so take it out of the loss-making territory? That’s the question.

The third question is on NII. I was wondering if — I think Q2 NII was a bit higher than Q1, thanks to the repricing on the deposits. I was wondering there if you see a bit of potential upside from repricing or without telling me that you will do it, I know you can not tell it for competitive reasons, but do you see still upside from that on NII? Or you think this is mostly over now?

And just also coming back on the mortgage margin pressure, are we talking small margin pressure or a bit larger than in the past?

And then the final question is on the cost. I was wondering if you — you mentioned that your IT is included in your run rate. Do you have the feeling that in your current run rate, you have IT expenses, you’re not under investing at present time versus what you have done in the past? And obviously, in the past, you had a big strategic investment plan. So those are my questions.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [10]

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Thank you, Benoit. I’ll take the first one on capital. And then the remainder, Evi, and the one on net income, mortgage and costs, those will be taken by Constant.

On the capital story, I think our capital story has been remarkably consistent over the years. You know our dividend policy. You know our commitment to returning capital to shareholders, subject to the regulatory approval. And we’ve also said very clearly that we will deploy capital to fund our growth, i.e., acquisitions. And all of those, we have done responsibly. So I think the specifics that you’re citing, does that actually change that policy? The answer is no. Will we continue to stick to those policies and follow, as we have done in the past? The answer is yes. And we, of course, part of that excess capital, and it increases, of course, in the current setup, and part of that would be used to fund our growth, but that leaves sufficient money to or sufficient capital to return to shareholders. So I think the combination of all those factors means that we will continue to be — we hope that we will be continue to be able to do, not — cancel the word hope. We’re committed to following what we have done in the past and be consistent in our own policy. Constant?

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. – CFO, Chief Risk Officer & Member of the Executive Board [11]

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Okay. With respect to Evi and the potential impact of the Hof Hoorneman acquisition, hard to say exactly, but of what we are now at a very small loss. Hof Hoorneman has about 200 million, 300 million of clients in their online investment solution, which we hope that they will join Evi next year. That will give us quite an increase in the Evi products. And as you know, Evi is, of course, a solution where the expense base is relatively fixed. And so I would have good hopes that this brings us in the right direction next year. And at least, it gives us more potential, also, for further growth.

NII, you compare Q1 to Q2. I don’t know exactly. I’ve done the math, but keep in mind that in the first quarter, we also have to include the so-called KiFiD claim in the NII. So making comparison and make sure you adjust for that. If you’d ask me, I don’t think there is significant upside on the NII in the short run. Basically, what you see is that there’s quite some pressure. Of course, we participated in the TLTRO. But at the same time, you see that this huge program, in itself, where I think banks participated for more than EUR 1 trillion is pushing down yields on various sorts of paper. So that, in itself, I think, is also putting pressure on a large liquidity book that we hold. So I think we will stay here for a while.

Mortgage margins, yes, there, I think we see slightly lower margins. I think a year ago, we were very happy with the mortgage margins in the first half of 2019. We saw it already coming down in the second half of 2019. And now we see it basically staying at that level.

With respect to costs, I think we have found the right balance at this point in time in terms of IT expenses. Of course, it’s a significant part of our budget. And we, of course, had a catch-up with our strategic investment program, so we can leverage from that. And I think the Belgium exercise is a good example of how, let’s say, with these programs, we can manage IT expenses also going forward because this will give us a significant benefit in future development. But yes, of course, in digital and IT, you can always invest more than you like, but I think we found the right balance right now.

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Operator [12]

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(Operator Instructions) The next question is coming from the line of Albert Ploegh from ING Bank.

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Albert Ploegh, ING Groep N.V., Research Division – Research Analyst [13]

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A few questions left from my side. Well, first one, to come back to the structured products and also the review thereof. I can recall from the Q1 trading update call that you also well explained this book, that risk transfer of the back book, so to speak, wasn’t too costly exercised. Yes, given that markets have probably, yes, improved much better than we had all expected back then, has that view potentially changed? And did it allow you maybe also to optimize further the hedging away from macro, maybe to individual lines as well? So some somewhat color on that.

The second question is that I saw in the press release that I think one of the last sentences that given the extraordinary circumstances, you asked the auditors to give an — to issue a review report. Why was this decided? Has that also to do that you want to have a second opinion on the marks on the structured notes? Or anything else? Or do I simply read way too much into it?

And the final question, you always provided a very helpful slide, 15, on the annualized recurring management fees, which — where the picture, obviously, is much more improved versus March. The 8% that is shown there, and should I read that — basically that as of the 2018 fee income level that you think you can grow, if everything stays the same, around 8% compared to the ’18 level of fees, which probably will give you around EUR 310 million, EUR 315 million kind of fees for the full year? Or am I over reading or misreading that slide?

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [14]

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I think these are pretty much all questions for Constant. I think the auditors, I think it will answer fully, but you’re reading way too much into it.

But anyway, I’ll hand it over to Constant.

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Constant Theodorus Leonardus Korthout, Van Lanschot Kempen N.V. – CFO, Chief Risk Officer & Member of the Executive Board [15]

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Yes. With respect to structured products, yes, we don’t have a different view on, let’s say, the difficulties to have a risk transfer on the back book. So we have to deal with that on — with macro hedging, but of course, we have also hedged more closely the book, in particular, also the tail risk. So we still are on a macro hedging basis, but we do it in a much tighter framework. And basically, it’s difficult to turn this book upside down and to do it differently.

The good news is, of course, that structured products are, by definition, products with a temporary nature. So also, we will — we see a decline of this book, just by the nature of the product. So this, at some point in time, will resolve itself, so to say.

With respect to our auditors review, and it was also a call from the VEBA. Basically it’s — well, I think in these exceptional times, it would be good to have all of us have taken a closer look at midyear results, which we felt appropriate to do so. Normally, we don’t do that. But we felt in this exceptional circumstances that it was wise to do so given, let’s say, turmoil in financial markets and everything else. So don’t read anything more in that just to have an additional confirmation on our books, and nothing more, nothing less.

With respect to annualized recurring management fees, I think what we’re trying to present here is how this recurring base evolves and show the picture that, let’s say, on a 12-month basis, so also looking forward, what you can expect from the fee base that we have. And that means that we made — we recovered from the decline in the first quarter. And of course, what we earlier reported that the increase in 2019 offers a good potential for the P&L of 2020. That was somewhat damaged in the first quarter, but is now more or less repaired in the second quarter, which tells you something, of course, short of any market declines that could happen, that also we see a better earnings base in the second half.

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Operator [16]

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There are no further questions in the queue. So I will hand you back to your host to conclude today’s conference.

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Karl K. Guha, Van Lanschot Kempen N.V. – Chairman of the Executive Board [17]

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Okay. Thank you, operator. And gentlemen, thank you very much for calling in and asking the questions and listening. Those of you from the media that are dialed in, thank you for taking the time and listening, and thank you for some of the headlines that you put out today. It feels closer to the performance. So thank you for that.

And on that note, on behalf of all of my colleagues, thank you, and have a good day. Bye-bye.

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Operator [18]

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Thank you for joining today’s call. You may now disconnect. Hosts, please stay connected.