"The offshore sector still gives us a headache, we had a serious and unexpected amount of impairments there," Chief Executive Kees van Dijkhuizen told reporters.
Shares in the Dutch bank fell 5.6% by 1005 GMT, the biggest loser by far on Amsterdam's blue-chip AEX index, after ABN said net profits were flat in the last quarter of 2019 at 316 million euros ($345 million). That widely missed analysts' expectations of a rise from a year earlier to 429 million euros.
Van Dijkhuizen said the energy sector struggled with slowing economic growth and low oil prices, adding the bank would focus more on renewables.
"These results are much weaker than what we expected," KBC Securities analyst Jason Kalamboussis said.
"The very large impairments validate our concerns there, while trying to put a lid on the costs will only be for 2021."
Total impairments jumped 51% to 314 million euros in the last three months of 2019. The bulk were in the Corporate & Institutional Banking division, which deals with the bank's largest customers such as in the energy sector.
ABN will take measures to make its loans to the energy sector less vulnerable, Van Dijkhuizen said, after previous large write-offs in 2018 had already led the bank to limit trade and commodity finance operations in the offshore energy, diamond and shipping sectors.
"We will stay in the offshore energy sector, but will look to derisk and focus more on renewables," Van Dijkhuizen said.
The lender gave no update on an investigation begun by Dutch prosecutors last September into ABN's alleged failings to detect money laundering and to report suspicious transactions.
The bank said it had now dedicated more than 2,000 employees to the fight against money laundering, as it was forced to add staff after years of job cuts.
Since its bailout by the Dutch state in 2008, ABN has refocused on the Dutch market, cutting thousands of jobs in the process. The bank was re-privatized in 2015, but the Dutch state still owns 56% of the shares.
Van Dijkhuizen said there were too many uncertainties surrounding the bank to consider an increase in dividend, citing the prosecutors’ investigation and rising regulatory costs.
Costs of client oversight will continue to rise, Van Dijkhuizen said, but are expected to be offset by savings made through digitalization of services and better use of information technology.
"We expect costs to be around 5.1 billion euros in 2020 and below 5 billion euros thereafter," the CEO said.
Total operating expenses amounted to 5.28 billion euros in 2019, taking the bank's cost-to-income ratio up to 61.2% from 58.8% a year earlier.
ABN’s capital ratio remained relatively strong at 18.1% at the end of 2019.
(Reporting by Bart Meijer; Editing by Shounak Dasgupta/ Mark Potter/Susan Fenton)
By Bart H. Meijer