September 22, 2022

ABN AMRO for sustainability in time of high interest rates

ABN AMRO for sustainability in time of high interest rates

Everyone is talking about the interest rate hike. The already higher interest rates and the prospect of even higher rates are frightening many. What is often overlooked are the beneficiaries of higher interest rates: the banks. Banks live to an important part from interest rate differences, the interest they have to pay themselves and the interest they receive from their customers. Banks have a bad reputation. That is precisely why Obermatt founding partner Dr. Hermann J. Stern was pleased to see the Dutch ABN AMRO Bank on the top 10 list of the United Nations Sustainable Development Goals (SDG) list on climate action, SDG 13 of September 22, 2022.

One can have different opinions about the reliability of sustainability reports. But then, companies that commit to specific goals are more likely to pursue them than those that don't. Therefore, we give ABN AMRO the benefit of the doubt, especially since the universal bank also appears on Obermatt's list of SDG 9, 12 and 13 and has made it into the Investment themes of employees and healthy compensation practices, not a given in the banking sector.

PRO: The following three points speak for a buy:

  1. The bank has excellent Value (85) and Growth (61) Ranks, so combined they are better than 96% of their peers (ranked 96) as of September 15, 2022. ABN has been undervalued for a long time, and it still is.
  2. The topic of innovation and sustainability occupies a central position at ABN, with initiatives such as ABN AMRO Ventures, Techstars, Tikkie, Doorpakken, New10 and Franx. They seem to be in the right place in 2022: digitalizing all of their services and taking them to the next level by building a blockchain.
  3. ABN has just been named the best broker in the Benelux area for 2022 by Institutional Investor.

CONTRA: The following three points argue against it:

  1. Currently rising and generally fluctuating interest rates in the banking sector worldwide make for an uncertain future for investors and ABN has been marked as one of most vulnerable banks in Europe when it comes to fluctuating interest rates. They make 70% of ABN’s income.
  2. Sustainability reports can be misleading, and one may not care about them when investing. On the other hand, ABN has set its goals high and it seems they are reaching them.
  3. People don’t like investing in banks.

The pros clearly outweigh the cons in the case of ABN AMRO, especially if you’re taking sustainability, healthy compensation practices and innovation seriously. We are very pleased to have found a bank with these practices, especially with the general suspicious opinion on banks. That is why we are buying ABN AMRO for our Wikifolio.

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