ABN Amro Bank NV

OTC:AAVMY

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for holding, and welcome to the ABN AMRO Q4 2019 Analyst And Investor Call. [Operator Instructions] I would like to hand over the conference to Mr. Kees van Dijkhuizen, CEO of ABN AMRO. Go ahead, please, sir.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you very much, operator. Good morning, everybody. Welcome to ABN AMRO's Q4 results. I'm joined here by Clifford Abrahams, our CFO; and Tanja Cuppen, our CRO. I will update you on where the bank stands and take you through key developments in the last quarter. Clifford will go through the details on our fourth quarter results and run you also through capital and Tanja will update you on the developments in our loan portfolio. This is my last quarterly statement. And before I leave you -- brief you, sorry, on our Q4 results, I want to give you my perspective on my time at ABN AMRO, our progress and the actions we are taking to position the bank even better. If you turn please to Slide 2. Over the last 3 years, together with the Executive Committee, I have worked diligently to deliver on our strategy and targets, and the bank is financially in good shape. Sustainability is now the core of our purpose, banking for better, for generations to come. I see sustainability as a clear business opportunity, but it's also the right thing to do for all stakeholders. I've accelerated the digital performance of the bank over the last few years, we've built successfully platforms, including Tikkie and Grip, and Tikkie alone has more than 6 million active users. I've sharpened the focus of the private bank to a scalable onshore franchise in Northwest Europe. Though clearly, there is more work to be done, I've undertaken steps to improve profitability at CIB, reducing risk-weighted assets by EUR 5 billion. I've delivered on our cost savings, and our ROE has been consistently 10% or above since the IPO, the highest ROE of large Dutch banks and in the top of European banks. We have a strong capital position, having anticipated Basel IV well ahead of time. Of course, we have challenges, and here we are taking firm action. We were the first bank to announce that smaller savers will be protected from charging negative rates. We were also the first large bank in the Netherlands to announce negative rates for clients with deposits over EUR 2.5 million. We have a detailed delivery plan in place now for both remediation and building a future-proof organization for detecting financial crime. Our EUR 5.3 billion cost level 2019 is 2% lower than 2018 and will decline further this year and the years thereafter. So further cost savings will enable us more than to mitigate higher regulatory and compliance costs. TRIM is imminent and will be substantial, but we have a high capital buffer to deal with this. So all in all, ABN AMRO is a solid bank and is ready to face the current headwinds when I hand over to Robert Swaak at the end of April. Let me now summarize the key highlights of the last quarter on slide -- the third slide. Profit for Q4 is EUR 360 million, reflecting high impairments and in line with Q4 2018. Our full year result was solid with an ROE of 10%. We are on track to deliver on our cost programs. Capital remains strong with a Basel III of over 18% and Basel IV, quarter 1 of over 14% even after RWAs add-ons anticipating TRIM and model reviews of EUR 10 billion. We proposed to keep the dividend payout ratio stable at 62%, which leads to a full year dividend of EUR 1.28. Let me now update you on strategy execution on Slide 4. You will recognize our 3 strategic pillars, sustainability, customer experience and building a future proof bank. On sustainability, I'm pleased that we were once again in the top 10% bank in the Dow Jones Sustainability Index. We're now at EUR 19 billion sustainably invested client assets in the private bank, well ahead of our target a year early. I'm also pleased with the pace at which we are moving away from fossil energy. 15% of energy commitments in CIB are now renewable compared with 7% in 2018. And we're heading for 20% year-end. At the same time, we are making good progress on enhancing the customer experience. Video banking is increasingly used in all segments, including our private banks in Germany and France. We've teamed up with partners to broaden our product range. Last year, we entered partnerships on cybersecurity, corporate finance and accounting software. New mortgage products, such as the fund for 30 years mortgages and the mortgage facility to invest in energy efficiency have made a good start. Also good progress is made in building a huge proof bank. So 125 teams have now moved to DevOps, already providing efficiency gains by increasing automation further. We increasingly move application to the off-premise cloud. We're one of the first banks to do so. And we're making progress in product rationalization, aiming for a reduction of more than 50%, for example, in loan products in the retail bank. And we got rid, in the last couple of years, of 2,000 applications. Let's move on, how we are tackling the challenges this sector is currently facing. We have been focused on detecting financial crime or DFC for many years. We have built a solid foundation and continue to make progress. The review of CIB and private banking clients is concluded. We have centralized all our DFC activities. A detailed DFC plan has been developed incorporating external findings. This plan has been shared with the regulator. Remediation programs in retail including ICS and the commercial bank are up and running, and we expect to complete them by 2022. Currently, over 2,000 FTEs are working on DFC, both on remediation and business as usual. We have invested in state of the art tooling, including Fenergo in which we now also participate through the ABN AMRO venture fund. We have a very good engagement with the authorities on the DFC industry approach, and we are keen to increase further cooperation, both with authorities and other banks. There's no update on the investigation by the Dutch Public Prosecutor, we cooperate, of course, fully. As we have said before, strict compliance is a license to operate. And we will remain vigilant in the detecting financial crime and continue to make necessary investments. Now I will update you on cost developments on Slide 7. In the past few years, we have demonstrated strong cost discipline, keeping costs relatively flat despite increasing regulatory cost, wage inflation and investments in digitalization and process optimizations. In 2019, the cost run rate was around EUR 5 billion, excluding incidentals. Clearly, further ramping up of DFC activities creates material cost pressure. In 2019, we spent around EUR 400 million on DFC, including EUR 174 million on remediation provisions. Future DFC costs are mostly business usual as we have already largely funded remediation through our provisions, which currently amount to over EUR 220 million in total. We expect total DFC costs to stabilize at around 2019 levels and then decline over time as remediation activities are completed and we automate the business usual. We currently assume only limited benefit from automation. In mitigation, we have a pipeline of savings initiatives underway, mainly in IT, as already flagged at our Investor Day in 2018. We are working on further rationalizing the IT landscape making the move to DevOps and off-premise cloud. Also we are optimizing the offshore delivery model. We see further cost savings opportunities to up and around EUR 300 million by 2022, lowering our IT spend towards the sweet spot. This will mitigate the DFC cost pressure, and we are on track for costs of EUR 5.1 billion in 2020 and below EUR 5 billion thereafter. On the next slide, I will discuss the CIB refocus and impairments. In CIB, we have some good client franchises and the majority is performing well. For instance, the core Dutch clients, Northwest Europe and Clearing. However, CIB is facing cyclical and long-term challenges. Mid 2018, we decided to refocus CIB to improve for profitability to an ROE of above 10% by 2021. I'm pleased that we have reduced our RWAs by EUR 5 billion. In the diamond sector, where exposures have been reduced, we have seen significantly lower impairments in 2019. We're also making progress on taking out cost and transforming CIB to a more capital-efficient operating model. However, this has not yet resulted in a structurally improved ROE as impairments in Q4 were very disappointing. A prolonged downturn in the offshore sector has led to high impairments in Q4 and though the bulk of CIB impairments were in sectors we have been actively derisking, it's clear we need to do more. We will continue to derisk highly cyclical sectors, and we'll review additional measures needed to structurally improve CIB's profitability. I would now like to hand over to Clifford to take you through our fourth quarter results. Clifford.

[Clifford J. Abrahams, Vice]

Thank you, Kees. Turning to Slide 9. As Kees mentioned, Q4 profit was EUR 316 million, reflecting high impairments, while full year profit was solid at EUR 2 billion, despite the low interest rate environment and low private equity results in 2019. NII was impacted by deposit margin pressure, both in the quarter and for the full year. I am pleased to say expenses continue to trend down reflecting cost savings, lower FTEs and lower restructuring costs, despite the ramp-up of detecting financial crime activities. I'm disappointed with the high impairments in Q4, mainly in inshore -- in offshore. Tanja will give more background on this. I will now guide you through the individual line items on the next slide, but first, our client lending on Slide 10. As background, I can say the Dutch economy remains strong with low unemployment. For 2020, we expect GDP growth positive at around 1%. The housing market remains resilient and the housing shortage combined with low rates has led to further rise of house prices. In this context, I'm pleased with our mortgage performance in 2019. We introduced some successful new products, including the platform for 30-year mortgages together with the facility allowing home owner to invest up to EUR 25,000 in energy-efficient measures for their homes. So after a very strong performance in the second and the third quarter, market share normalized in the fourth quarter to 18%, which meant overall for 2019, we had a market share also of around 18%. The mortgage market remains competitive, and we maintain our pricing discipline. Due to the seasonal increase in voluntary redemptions, the mortgage book declined modestly during Q4. CIB's loan book decreased also due to the CIB refocus, as Kees mentioned, while the commercial banking loan book is up slightly for the year despite our focus on margins, and despite our focus on margins in a competitive environment and our tight risk limits. Turning now to NII on Slide 11. In line with our guidance, net interest income held up well in Q4. The impact from low rates was around EUR 20 million during the quarter, also in line with our guidance. Compared to Q3, however, liquidity management costs were higher as last quarter saw some larger FX positions roll off. Looking ahead for 2020, we expect NII in the range of EUR 1.5 billion to EUR 1.6 billion per quarter. But it won't be a linear movement. We're taking action on deposit margin pressure by charging negative rates to clients with balances above EUR 2.5 million, and reducing deposit rates to 0% for other clients as of April 1. We're also moving on rates in Germany. This means, as of April, we will charge negative rates on around 1/3 of deposits over EUR 100,000 previously not charged, which is equal to around EUR 30 billion of deposits. And this leads to an additional EUR 150 million of income on a yearly basis. The remaining 2/3 of deposits between EUR 100,000 and EUR 2.5 million or around EUR 60 billion are currently not subject to negative pricing. Of that EUR 60 billion, around EUR 14 billion of deposits are between EUR 1 million and EUR 2.5 million. So negative pricing together with the ECB deposit tiering will dampen the deposit margin drag from Q2 and beyond. Turning now to fees and other income on Slide 12. Fees in Q4 were lower due to modestly lower clearing fees. Fees in all other businesses were largely unchanged. We continue to work on fee initiatives across all sectors, for example, in investments in insurance. Other income was in line with our guidance of EUR 125 million for the quarter. Going forward, however, we are lowering the guidance for other income to around EUR 100 million per quarter as we expect lower private equity results, reflecting the current outlook of the portfolio. Now moving to costs on the next slide, 13. I continue to be pleased with our cost development. We have delivered on the planned reduction in FTEs as these have decreased by 19% since year-end 2015, despite the increase over the last quarter in both internal and external FTEs reflecting detecting financial crime activities. Adjusted for restructuring and remediation provisions, costs continued to trend down despite higher DFC costs and wage inflation. On the right-hand chart, you see we have increased cost savings by EUR 45 million delivered, bringing total delivered cost savings since 2015 to EUR 900 million. We continue our disciplined cost focus and expect further savings in 2020 of around EUR 200 million towards a total of EUR 1.1 billion of cost savings. As Kees mentioned, we expect costs of around GBP 5.1 billion in 2020 that is including DFC costs, and thereafter, we aim for total cost to be below EUR 5 billion, again, including DFC costs. I will now hand over to Tanja to pick up impairments on Slide 14.

[Tanja J. A. M. Cuppen]

Thank you, Clifford. Our fourth quarter impairments were high at EUR 314 million despite the generally sound economic environment in the Netherlands. The impairments in the retail bank of, in total, EUR 55 million are largely a result of changes in calculations of modeled impairments. Impairments for the commercial bank were at benign levels with a cost of risk of 55 basis points. And CIB impairments were high, predominantly in the offshore sector as it experiences a severe prolonged downturn due to the low oil price. In the past few years, we have been actively derisking the offshore portfolio, and we will continue to do so. Despite the high Q4 impairments, the cost of risk for 2019 still ended below the through-the-cycle level as guided. For 2020, we expect the cost of risk to be within the through-the-cycle cost of risk of 25 to 30 basis points. I now hand back to Clifford to discuss capital developments on Slide 15.

[Clifford J. Abrahams, Vice]

So our Basel III capital position remains strong with a CET1 ratio of 18.1%, reflecting the retention of full year profit, offset by EUR 5 billion additional RWAs for TRIM and model reviews in Q4 and an increase in operational risk. The additional RWAs for TRIM and model reviews reduced the CET1 ratio by approximately 90 basis points in Q4. So without this effect, CET1 ratio would have been around 19%. To date, we have booked around EUR 10 billion in total or 200 basis points of TRIM and model reviews ahead of receiving the final TRIM letters later this year. Nonetheless, at 18.1%, we are well above our current SREP requirement of 12% despite the increase of 25 basis points, reflecting required improvements in credit risk models and processes and our DFC activities. Alongside capital, the leverage ratio was strong at 4.5%. As the SA-CCR methodology for clearing guarantees becomes effective in 2021, this will add another 70 basis points to the leverage ratio, bringing it to 5.2%, well in line with our peer group. So our capital position is strong. But we need to consider forward developments, which are relevant for how we manage our capital position today. I will explain this further on the next slide, 16. So looking at the top left, we are focused on Basel IV and are well positioned to absorb the associated RWA inflation and the Basel IV, given our ratio of over 14% at year-end 2019. It's a clear positive that the uncertainty on NHG mortgages is now addressed, and they will be treated as sovereign and the Basel IV. We update our Basel IV figures regularly, and we will update these again when the European Commission comes with its proposal for Basel IV implementation during the summer. Turning now to Basel III. The graph on the right shows the approximately 10% of RWA inflation that we have already taken from TRIM and model reviews. You can see that the effect of this is to reduce the RWA inflation arising from Basel IV from around 35% in 2017 to around 25% in 2019. We expect a significant further impact on Basel III RWAs over and above our current add-ons from the final TRIM letters later in 2020. There will also be RWA inflation arising from the DNB mortgage add-on and the implementation of the new definition of default for 2020. Generally, all these developments won't impact our fully loaded Basel IV position for which we are already well placed. So the effect of these developments will be to increase Basel III RWAs further, bringing them closer to Basel IV levels thereby reducing again the incremental RWA inflation for Basel IV. So that's the gray box on the far right of that chart, which you can see narrows further from 25% in 2019 into 2020 and beyond. We expect clarity on these developments later this year, and we will update you on capital in the second half of this year. I'll now hand back to Kees to update you on dividend.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you. We have demonstrated every year a solid ROE of 10%, at least 10% since 2014, underpinning our commitment to deliver strong capital generation, and I'm proud of our track record on payouts. As indicated by Clifford, our Basel III capital position remained strong with a Core Tier 1 ratio of 18.1%, 1 of the highest in the sector, enabling us to pay an additional amount on top of the 50% of sustainable profit. Cliff explained the TRIM, additional model reviews and the announced risk weight floors on mortgages will have a very significant impact on RWAs in 2020, lowering predominantly our Basel III Core Tier 1. And as we also mentioned in the second half of 2020, we will update you on capital. There is also the transition to Basel IV, and we remain subject to an investigation by the Dutch Public Prosecutor. We're also mindful of the current economic outlook. We have decided to maintain the payout ratio of 62%, an additional distribution of 12% of sustainable profit. So we proposed a dividend of EUR 1.28 per share for the year. Moving on to our targets on Slide 18. As you can see, we have again delivered on our ROE target despite the low interest environment, not many banks in Europe have realized a double-digit return for 2019. Also we have delivered on our CET1 target despite TRIM and model reviews. We recognize that the sector is currently facing major challenges, especially in the continuing low interest rate environment. I expect that the ROE in 2020 will be below the target range. And given these circumstances, it will also take longer to reach our cost to income target of 56% to 58%, as mentioned before. Before we go into Q&A, I would like to briefly recap on Slide 19. So the highlights of my final analyst presentation. Our full year result was solid with an ROE of 10%, 1 of the highest in Europe. I'm pleased that costs declined in 2019 despite extra DFC costs and continue to further trend down. Capital remained strong with a Basel III Core Tier 1 of over 18% and a Basel IV Core Tier 1 over 14%. The bank is in good shape and the full Executive Committee continues to diligently focus on the execution of our strategy. We maintained a dividend payout of 62% and proposed a full year dividend of EUR 1.28 an additional payout of 12%. Now I would like to ask the operator to open the call for questions.

[Operator]

[Operator Instructions] First question is from Mr. Farquhar Murray from Autonomous.

[Farquhar Charles Murray, Partner, Insurance and Banks]

Just 2 questions, if I may, both really focused on the Basel IV capital position. Starting with Slide 16. I just wonder if you could clarify. So I'm presuming, in a sense, the 25% RWA inflation applies to the full year '19 position based only on recognizing the EUR 10 billion of TRIM so far. And I think that's the right way of understanding. I think that's what you're saying, but I just want to -- the bullet actually possibly a little bit of ambiguity there. And then specifically, moving on to the definition of default. Can you just confirm for me that, that will be incremental to the Basel IV RWA? And can you yet give a bit of a sense of a broad magnitude around that impact? And then more broadly, is that the only upcoming regulatory change that is going to impact on Basel IV RWA over 2020?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you. Clifford, will you?

[Clifford J. Abrahams, Vice]

Yes. I'll answer that and Tanja chip in, if I -- further to add. I think your first question is correct. So the 2019, that sort of dark greenish blue reflects our EUR 10 billion of TRIM and model reviews that we've anticipated, the final letters. In terms of assumptions, maybe I'll ask Tanja to comment on DoD. We do expect, we continue to fine-tune our Basel IV assumptions. So I think DoD is something we'll reflect on. TRIM may have a read across into constrained IRB. So when we talk about Basel IV, we're talking about the revised standardized approach under the output floor, which is a much simpler methodology. We will, for example, look at the EC's proposal when it comes over this summer and fine-tune further if necessary, our assumptions whether it's the number themselves or timing or various approaches. So you shouldn't see Basel IV as a fixed calculation but it's something that we evolve over time to ensure we have a smooth transition into its [ apt ] implementation.

[Tanja J. A. M. Cuppen]

Yes. And on the definition of default, we expect to be able to implement that in the next quarter over how we have applied for a 2-step approach under the definition of default and expect to get some add-ons in RWAs for that. That will be based on the Basel III models. It's very hard to say whether there's any implication for Basel IV as well. But for sure, you cannot aggregate, well, the Basel III impact into the Basel IV number. So that will not be the case.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

And there was a final third question, I think, is this -- is there more to come around Basel IV?

[Clifford J. Abrahams, Vice]

Yes. And I think, as I indicated the case, I think it's possible that the EC proposals cause us to revise our assumptions. We feel we're up to date on our assumptions for EBA. So I'll give you an example, we slightly strengthened our approach to operational risk. So our multiplier is above 1 in our calculation. And we'll continue to fine-tune things because we don't want to see jumps either up or down in our estimation as we glide through to implementation.

[Farquhar Charles Murray, Partner, Insurance and Banks]

And then just a follow-on. I mean in terms of being as up to date as we possibly can, given the way the Basel IV landscape stands. Am I right in then taking your math is presumably guiding me to about 14.5% Basel IV ratio?

[Clifford J. Abrahams, Vice]

Yes. You can work it out from the 25% as you've done. I think we feel confident to say it's above 14% at the full year. Our balance sheet is always a little bit smaller at the year-end than it is during the year. But we feel good about being a position of above 14%. I think estimates to the nearest 0.1, I think they are not all that sensible given that -- given what's -- there are some moving parts around this number, both on assumptions, but also how we implement it in the business.

[Operator]

Next question is from Mr. Stefan Nedialkov, Citi.

[Stefan Rosenov Nedialkov, Director]

It's Stefan Nedialkov from Citi. A couple of questions on my side. When it comes to impairments, you are already taking a cumulative EUR 1 billion deduction through capital legal assistance of the ECB, how should we think about the provisioning in 4Q '19 and future provisioning? Is this basically taking the capital deduction and converting it into an actual provisioning item? Or is the provisioning that we're seeing in 4Q '19 and potentially later in 2020 on top of the EUR 1 billion ECB deduction? And the second question, when it comes to thinking about negative rates on deposits of more than EUR 2.51 million, yes, you guys were the first, but then somebody else came up in the Netherlands and announced negative rates on deposits above EUR 1 million. Could you potentially go down to EUR 1 million down the road? And how fast could that be?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Tanja, will you refer to the first. I think it's NPE related that question or not, NPE? Nonperforming exposure or not? The minus EUR 1 billion or what is...

[Tanja J. A. M. Cuppen]

Yes. That's my expectation as well that with EUR 1 billion, you referred to the ...

[Stefan Rosenov Nedialkov, Director]

NPEs, yes.

[Tanja J. A. M. Cuppen]

Capital from the prudential backstop. So yes. And then the provisioning that we take, well, we take on existing exposure, new exposure in default. So it's not related to the prudential backstop in itself because that's -- well, only on existing stock and only on the older stock in nonperforming loans. So the provisioning level you really need to see as developments that -- in the offshore sector that I was referring to.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Does that cover your question?

[Stefan Rosenov Nedialkov, Director]

The NPE question, yes. So the EUR 1 billion capital deduction, which you are taking EUR 200 million at a time per year that is separate from the 4Q '19 And the potential 2020 provisioning strengthening?

[Tanja J. A. M. Cuppen]

Yes, correct. So the guidance on the impact of NPE is -- has been unchanged.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Yes. Thanks, and I will respond to your question around negative rates. We have -- we were the first indeed, and I've said that EUR 30 billion of deposits, as Clifford said, is related to the area above EUR 2.5 million for us, meaning EUR 150 million on a yearly basis. This year not fully because we started 1st of April, of course, but on a yearly basis, EUR 150 million, 50 bps times EUR 30 billion. The amount that is left between EUR 2.5 million and EUR 100,000 is EUR 60 billion deposits. If you would have 50 bps on that, that would mean another EUR 300 million. But we are not allowed to guide in this sense when we will do, whatever. So EUR 1 million or EUR 100,000 or whatever, we're not allowed to guide there. What you can do, of course, is compare not only the EUR 2.5 million bracket we use, but we also gave an amount. And I think other banks also gave, on the one hand, a bracket and also an amount there.

[Operator]

Next question is from Mr. Robin van den Broek from Mediobanca.

[Robin van den Broek, Research Analyst]

The first one is more about the NII guidance. And I think the range you've given, EUR 6.0 billion to EUR 6.4 billion is rather wide. And I was just thinking about the narrative you've put in place before today? And to what extent that still stands? Because if I take your underlying run rate of today at the fully phased level for tiering in there, then you're basically at [ 50 90 ]. If I expect that to degrade by EUR 20 million per quarter and at EUR 35 million to EUR 40 million as of Q2 on the back of the rate mitigation as you've already announced. That will get me closer to EUR 6.3 billion, which is more on the upper side of your range, obviously. I was just wondering if you could retake us through the asset side effect because in the past, you've been fairly clear that these effects should be positive for your NII, but in the last few quarters, we haven't really seen that. So I'm just thinking, are you building in some cautiousness on the CIB derisking for NII? Or the -- maybe the mortgage volume drop off where the amortization side of the balance sheet is starting to kick in. So yes, more color there would be very helpful. And the second question is -- I'll keep it as a smaller one. You mentioned the ExCum (sic) [ CumEx ] litigation in Germany. And I'm just wondering why you're making that so specific because I think the largest lender in Germany settled that for, I think, EUR 4 million or something like that. So why are you bringing this forward so specifically at this stage?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you very much, Robert. Clifford, you will answer the first one?

[Clifford J. Abrahams, Vice]

Yes. I think on NII, I think there isn't a huge amount of new information we think it conveyed in our guidance. So you've annualized it. But we've given the NII per quarter rounded to the nearest EUR 0.1 billion. And we wanted to convey that we see it as lower than EUR 1.6 billion going into 2020, reflecting that deposit margin pressure. You've gone through the calculation, which I think is perfectly reasonable. But we expect, for example, the -- we expect the deposit -- the negative pricing to kick in from Q2. So it will go down, then that Q2 and negative pricing will support it, and then we'll get the drag thereafter on the deposit margins. I think on the asset side, it's very early in the year. But you've seen our balance sheet broadly stable, and that reflects our caution in the current interest rate environment and our focus on defending our margins. So that's really what's going on around NII. We also wanted to move away from the guidance of a drag per quarter because at this point, we've already got tiering in our numbers, and we've announced negative deposit pricing. So just focusing on one component being the deposit margin pressure we didn't think was very helpful to you. And we thought it was better to just guide to total NII. I think you'll need to take your own view on the roundings within that range. And finally, I would say, we always see a little bit of volatility during any quarter. We saw that again this quarter NII, and I think you need to factor that in and understand when we give a range, we want to make sure that there's a high degree of confidence of landing within that range.

[Robin van den Broek, Research Analyst]

Okay. And then maybe the one -- if you lower the deposit -- the threshold to EUR 1 million, could you confirm that, that is roughly EUR 15 billion of the remaining EUR 60 billion that you still have available to charge negative rates to?

[Clifford J. Abrahams, Vice]

Yes. As I said, I said it was EUR 14 billion. Actually, my...

[Robin van den Broek, Research Analyst]

EUR 14 billion. Okay, got it.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Yes. Correct, correct. Yes. With respect to your -- question on litigation, Germany and one body settling EUR 4 million this is related to what's called the CumEx Files, meaning trading around dividend date. A lot of those things are looking back to the period before 2012. The reason we have mentioned it is that prosecutors have stepped up actually in Q4 in Germany. So we see a legal risk there. We have a lot of information about this, by the way, on our website. So if you want -- you can look there. We have settled with tax authorities. But as I said, there is a legal risk. And the EUR 4 million you mentioned, I think there are a lot of case out there. So yes, it's too early to tell if and when prosecutors would decide on this.

[Operator]

Next question is from Mr. Benoit Petrarque from Kepler Cheuvreux.

[Benoit Petrarque, Head of Benelux Equity Research]

Yes. Benoit from Kepler. Yes, coming back on the NII, I mean, if you want to get my view, I would rather get NII dry guidance. I think this is very useful. And we can figure out what the impact of lower and negative rates will be on NI. But if you look at -- obviously, negative rate will not stop at the end of 2020. Can we expect further drag from -- on NII from low rates around the EUR 20 million you have guided before in 2021? And because if I kind of worked around that assumption, NII before mitigations like negative pricing on deposits will be below actually the EUR 6 billion level. So is the -- to come back to the previous question, is this EUR 6 billion to EUR 6.4 billion range also translating a bit the downward pressure also going further into -- in 2021? So that's the first question. And the second one was on the dividend, EPS of EUR 1.28. I just wanted to understand why you have set it at this level. Did you -- I think it looked like stable payout was something you had in mind, but just wanted to confirm that actually, over 62% was a requirement on your side to keep it stable? Or is there any reason behind it? And also, did you take into account -- any settlement risk into account in setting the DPS?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you very much, Benoit. Clifford, the first question.

[Clifford J. Abrahams, Vice]

Yes. I think on NII, I think -- Benoit thanks for the feedback on the guidance approach. I think one way to think about this, if you want to analyze in further detail, as we said, is to look at the 5-year swap rate, and you need to look at the delta between what it is now and what it was 5 years ago. This is quite a simplistic approach but it will give you a sense of the severity of the drag and how it ebbs and flows. So when you look at that, you can see it moves around a bit. But actually, we expect that drag pressure to be roughly stable into around about 0.5 point of this year and then actually get a little bit better as in more beneficial to the company as you head into the second half of the year. But that is -- you can run the numbers and draw your own conclusions, but there's a few moving parts, but that gives you a sense. I think the other thing I would pick up is, we know consensus and consensus was about EUR 6.3 billion of NII, and I heard the range earlier of EUR 6 billion to EUR 6.4 billion. I think our guidance or our -- what we're trying to telegraph is that we see some, if you like, softening of the EUR 6.4 billion. We know that consensus is EUR 6.3 billion, but EUR 6.0 billion would mean EUR 1.5 billion every quarter this year, and that's not our expectation. So we expect to operate in that range and sort of drifting within that range, reflecting the margin pressure, but mitigated by the deposit actions and tiering that we've communicated. So I think that should give you a little bit more color as you think about consensus and how you might want to change your estimates for this calendar year.

[Benoit Petrarque, Head of Benelux Equity Research]

But if I -- I mean if I understand correctly, I mean, we could get towards the EUR 1.5 billion run rate towards Q4 or towards the end of the year? And will that be the new run rate for 2021?

[Clifford J. Abrahams, Vice]

I think it's possible. I think rates can go up as well as down. I mean -- and you'll note that rates are higher than they were in Q3 last year. I do feel -- we've talked about the benefit of the deposit margin pricing that we put through. That's roughly 2 quarters of drag. So I don't think I'm going to give -- I'm not going to give another decimal point on the EUR 1.5 billion. But I think it's clearly would be too cautious for you to assume EUR 1.5 billion every quarter. That's just not what we're saying.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you, Clifford. With respect to dividend, Benoit, the 62%. I would say we did not lower that percentage because we have a good capital position, and we did not higher it because of the uncertainties that are around at the moment.

[Operator]

Next question is from Mr. Albert Ploegh from ING Bank.

[Albert Ploegh, Research Analyst]

Two questions from my end. First to come back to the impairments and the outlook for 2020. I mean you guide basically or expect to stay within the 25 to 30 basis point through the cycle range. Yes, with the bump in Q4 that has been well explained, you're ending year 24 still bit cautious, it seems, given where the state of the economy is. So is this more a reflection of your general caution on economic outlook? Or are you still concerned that maybe the further derisking of CIB, could we sell this for more impairments a bit to frame that line of thinking in terms of the guidance? The second question is on the operating cost base guidance, which is quite helpful also for the coming years. I appreciate that. But to be clear also linked to the review of the CIB division and any other things you may still contemplate, it does not include any restructuring costs. So it's only the operating cost base, including all the DFC costs to make that point clear? And then should we also expect any restructuring costs coming out of the CIB review? Or is that more on portfolio optimization and not so much on the cost base?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Tanja, can you take the first. Clifford, the second.

[Tanja J. A. M. Cuppen]

Yes. Thank you. Your question on the cost of risk guidance. Indeed, that is reflecting, on one hand, a slowdown of the economy, but also importantly, the way we look at the CIB portfolio. We continue to be negative on the outlook for the offshore sector, and we are also cautious on the oil and gas sector, and that is included in our guidance for the coming year.

[Albert Ploegh, Research Analyst]

Maybe one small follow-up on that. Can you give us a little bit latest numbers in terms of sizes of these different loan books and what these stage 3 ratios are?

[Tanja J. A. M. Cuppen]

So if you look at offshore, and I don't have the exact percentages, but the head, offshore segment is mentioned in the presentation on Page 8. About half of that is in stage 3. For the oil and gas sector, that is a much lower percentage. So that sector is definitely doing a lot better, but we see a downside in that sector, given the development of oil and gas prices.

[Clifford J. Abrahams, Vice]

So I'll pick up on the cost side. So we've given the pipeline of future cost savings, those largely relate to IT. And we gave further detail on the IT plans at our November Investor Day and subsequent analyst lunches. You'll recall, Christian, our IT Director talked about what he was planning to do. In case described that we're making good progress on those. Most of those initiatives are not, I'll call it, restructuring cost heavy. So they involve changing our relationships with our outsourcing partners to have more of that support offshore or moving to the cloud restructuring our -- the way we go about our change. So you should not expect very material restructuring cost to emerge associated with that pipeline of savings, the EUR 0.1 billion , EUR 0.2 billion, EUR 0.3 billion. I think it's too early to say where any review of CIB might get to in terms of restructuring costs. I think the goal of any review or further review will be to reduce exposure to cyclical sectors and volatility of impairments and to give us comfort that, that business will deliver on its return targets in due course.

[Operator]

Next question is from Mr. Benjamin Goy, Deutsche Bank.

[Benjamin Goy, Research Analyst]

Two questions, please. One follow-up on the CIB. And then one on cost. On CIB, now you have reduced your portfolios in the troubled sector quite a bit. Is there some level where you say it is critical from a scale point of view, meaning that you have in-house all the capabilities to be able to offshore lending to do diamonds or do oil and gas? And would that be part of the review or maybe even say, well, there are some portfolios we're in, and some we are really out instead of just running it down? And then secondly, on the client due diligence and its impact on costs. You say retail banking is ramping up. And the commercial bank is accelerating. What's the risk we get more provisions here as you go along in 2020?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

I think around the CIB, this minimum lending levels is, of course, something we will also look into when we analyze and review. Not something to update now at this moment in time. So will be part of definitely our review. With respect to the CDD, no, I think we have taken -- we've done our analysis, and we feel comfortable with the figures that are out there. And so we do not expect, at this moment in time, extra cost. That does not mean it cannot happen. As we've seen it in the derivative file, it was also a difficult to file. So it's a big file this one. But at this moment in time, we feel comfortable with what we have, well, said to the market, not only on the CDD itself, but also on the total cost level we have guided now to you guys.

[Operator]

Next question is from Mr. Tarik El Mejjad BofA.

[Tarik El Mejjad, Equity Analyst]

Tarik from Bank of America. Two questions, please. I mean first of all, on the dividend. So you commented that given the uncertainty on AML issue, on the rates, Basel, transition to Basel IV and so on, 62% or keeping payout flat is probably fair enough. I mean now cost also is at 70% for 2020. So I presume it's still high there. Or do you believe that 2020 could be a better year in terms of -- or at the end of the year, you'll have better visibility and you could potentially increase the payout? Secondly, on the costs. I would like to understand what was the assumptions you put in terms of remediation plans to come with EUR 5.1 billion and then below EUR 5 billion in 2021, especially how far you think the prosecutor will go into reviewing your books? Because that, I think, has direct implications on how much you need to spend to review these books. And lastly, if you can give us some update on the AML case. I mean I know that you've put in your slides that there is no update, but I'm sure you can give us some flavor.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you for the questions, Tarik. Cliff, if you take the second. I'll take 1 and 3. With respect to dividend. And as you said, stable, you understand because of the uncertainties, but in what end of year can there be a higher payout. I think that with respect to that, I would say -- and I've read it also in analyst reports now more and more, that's also a feeling that we might have seen now, in a way, peak regulation around capital in the sense that we do not expect a lot of new regulation to come up in the coming period. It's more, I would say, the execution of existing regulation, be it the European Commission, finalizing Basel IV in the summer, be it TRIM, get letters this year and presumably earlier this year and later this year. The definition of default, Tanja referred to Q1. So we actually think that all that stuff -- and then, of course, the mortgage add-on of Dutch Central Bank, Q3. So all that stuff is more or less known, we think, somewhere around the second half, some of the time in the second half of next year. I think we also need indeed Basel IV European Commission, that's relevant. And if we have all that, and that's the reason why we have said we will update you then on capital. Well, it's too early to say now that we can then increase payout. But I think, in a way, all options are open at that moment in time because we have then to update you on where we stand with capital, what we expect from regulators at that moment in time. We feel and hopefully we know -- also perhaps a bit more around the AML case, we feel that we are then in a better shape to say more than we can do right now. And as I said, we do not expect -- and of course, COD 5 is coming up in next year, and that's also -- of course, that's a relief, the COD 5 coming up next year. So we think, actually, that is then -- there's more clarity around that. And that's the reason why we have guided now to have a capital update at that moment in time without being able to say anything about direction at this moment in time because we really need to have all the figures in place.

[Clifford J. Abrahams, Vice]

Yes. So Tarik, your question about our -- call it, our level of confidence in our DFC cost. So I'm looking at Page 7 in the presentation to give you a bit more color on the process we went through, and you'll understand how that relates to our last quarterly update. So we have -- we commissioned an independent expert to review our DFC activities, it was through the summer last year, it was during Q3. And that process was looking at what our plans say, where we are and how -- what the gap might be between what we are doing in best practice. So that is -- that was a global -- an expert with a global expertise, but obviously a focus on what we're doing here in the Netherlands. So we are very clear on where there may be gaps and how and when we may choose to close those. And those plans were then further updated and shared with the regulator. And that process bridged our November Q3 results process. And so we have detailed plans in execution now that reflect our dialogue with the regulator and our judgments about where we are with respect to best practice and priorities. I think -- and that's what's behind Page 7. And you can see the bars, there's actually relatively limited remediation in 2021, and that reflects the fact that we have over EUR 200 million of remediation provisions on the balance sheet in 2019. And we've kept the gray bars constant, as you can see there, at around EUR 300 million. And that reflects the fact that based on our existing plans, we'll do that manually, but we have -- we believe there's plenty of scope to automate and get more efficient with these activities whether it's on our own or in combination, in partnership through utility with other banks here in the Netherlands. I think you raised the issue of the prosecutor and what the outcome of that process might be. I think that's -- I don't really want to speculate on that. But what I can, if you like, give you comfort on is that our comprehensive plans that we shared to the regulator reflected a well-informed view of current and best practice, and those were updated -- were constantly updated but that landed in Q4 last year.

[Tarik El Mejjad, Equity Analyst]

And about an update on the -- or was it -- that's your last answer on that -- on the case?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Yes. I think Clifford said something but not more to be certain, unfortunately, we don't know yet, we hope, of course at the end of the year we know much more, but we do not know. So...

[Tarik El Mejjad, Equity Analyst]

And all my best wishes for the future, Kees.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Thank you very much, Tarik.

[Operator]

Next question is from Mr. Gregoire De Salins from Morgan Stanley.

[Gregoire De Salins, Research Associate]

Two questions from me, please. So the first one is on asset quality. So what kind of actions are you contemplating to reduce your exposure to offshore energies and other like cyclical sectors, like it's like through hedging, loan sales, et cetera? And what cost do you think will be associated with it? And also maybe finally, if you start reducing your exposure to these sectors. Would you revisit your estimates of the NPE impact related to the NPE guideline implementation from ECB?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Tanja?

[Tanja J. A. M. Cuppen]

Yes. So your first question, how do we reduce our exposure to cyclical sectors. We do that actually in many different ways. So we sell exposures if that's possible. We use insurance and hedges and also run off portfolio at refinancing date. So it's a combination of efforts. So you've seen that in this way, we have reduced the offshore exposure with 30% over the past 2 years, in diamond, for example, with 45%. So we are very much focused on the cyclical sectors here. And I have been successful in reducing our exposure. And I think your second question was...

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Revisit NPE as a result.

[Tanja J. A. M. Cuppen]

Yes. So the NPE guidance is -- it's early days. All the regulation has come in now, and we will see actually the first impact by the end of this year. And we will continue to revisit this. We are actively also managing the impact of NPE. But as I said before, it's -- the impact only kicks in after, well, 5, 6, 7 years in default. So it takes some time. We very much look at the existing stock today and manage proactively the, well, new assets in default. So as said, I -- we stick with the guidance that we have provided before. And I think the current downturn will not impact NPE in the short run.

[Operator]

Next question is from Mr. Kiri Vijayarajah from ASBC (sic) [ HSBC ].

[Kirishanthan Vijayarajah, Analyst]

Kiri Vijayarajah, HSBC. Firstly, can I just go back to the DFC provisions, you just mentioned, Clifford. So it's over EUR 200 million of provisions sitting there. Did I interpret that rightly that you are not really planning to utilize those provisions during 2020 to cushion the cost number? It's more about protecting that EUR 5 billion cost target for 2021 and beyond? So really, what's the kind of time line in terms of utilizing EUR 200 million or actually more than about EUR 250 million of DFC provisions? And then on capital, so the Dutch mortgage risk weight floors that come in later on this year. So it sounds like it's pretty neutral to the Basel IV capital ratio. So I imagine it probably doesn't really impact your behavior or bank behavior generally in the Dutch market. So my question is really, what's the risk the regulator tries to use other macro prudential levers to cool down the housing and the mortgage market in the Netherlands?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Clifford, can you take one and...

[Clifford J. Abrahams, Vice]

Yes. So on -- I think you read too much into my comment on the provision. On Page 7, I was making the point -- the week because we have that provision. That the little light blue bar in respect to remediation costs are quite small despite the FTEs going up quite a lot. So you can see the FTE is going from 2,000 to 3,000 and although the remediation costs themselves are only going up modestly, and that reflects our drawing down on the provision. So I think what the point I was making regarding the provision is that you shouldn't expect a further ramp up in costs from '19 to '20 as we ramp up FTEs, as an example, because we've already booked the provisions in '19 and '18, and that will substantially mitigate that going forward. That's the point I'm making. So based on these figures on Page 7, the effective DFC is sort of flat to generally down on our total figures. So as the savings kick in, that gives us confidence that after that, call it, transition year this year, the EUR 5.1 billion, we'll see costs stabilize, and then we expect to be below EUR 5 billion in short order after that.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

And with respect to your second question, this mortgage add-on of the Dutch Central Bank indeed is more or less more a macro prudential measure they take. We see it in practice indeed as a more or less kind of front-loading Basel IV. Having said that, for of course the shorter tenures we now have to include in our pricing a bit of a different risk weight now from Q3 this year onwards, while it would kick in later normally with the phasing of Basel IV later. But for the longer maturities, where most of the market is the 20 and 30 years. It will not make, I think, any big difference at all in price.

[Operator]

Next question is from Ms. Anke Reingen from RBC.

[Anke Reingen, Analyst]

The first is on -- sorry, just a follow-up on Slide 7. Should we then understand that the cost bar shown for the next years are net of your taking the remediation provisions? And just to confirm the in due course below EUR 5 billion, that basically starts from 2021? And then I have a second question on your loan loss charge guidance of the 25 to 30 basis points. Now relative to the 24 basis points in 2019 that doesn't really look that conservative, but I guess, I understand that there were some one-offs in there as well as you no longer have these exposures. So is there any way for us to look at an underlying 2019 loan-loss ratio to say, this is a step up? So that was -- it might just be a flat, and that comes from a very high Q4 level.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Clifford, you take the first question and Tanja the second.

[Clifford J. Abrahams, Vice]

Yes. So on Slide 7. Yes, so 2020 and beyond DFC costs is the P&L expense. So if we draw on the provision, then we wouldn't -- it wouldn't affect our P&L. So I think that's what you mean by net.

[Anke Reingen, Analyst]

Yes, yes.

[Clifford J. Abrahams, Vice]

And then on the -- well, we wrote in due course rather than write in 2021. So we've not committed to it to be in 2021. So it's -- we'll give -- we can obviously give more clarity on that as we get closer to the end of the year. But our ambition and our plans are to bring cost down below EUR 5 billion, but we're not giving a commitment regarding timing at this point.

[Tanja J. A. M. Cuppen]

And then on your question, in relation to the guidance for cost of risk for next year. Yes, it's clearly the case that the Q4 impairment levels were disappointing and high. So we don't expect that for the -- for next year. But we do expect some elevation compared to the average for the full of -- the full year of 2019, and that relates also to CIB and to the sectors that I have mentioned before. So that's why we are somewhat more cautious.

[Operator]

[Operator Instructions] The next question is from Daphne Tsang, Redburn.

[Daphne Tsang, Research Analyst]

It's Daphne from Redburn here. Two questions, please. One on capital. So just wondering, while waiting for more clarity from the authorities regarding the AML investigation, how much of your capital buffer would you hold back and -- in case of any large fines coming up as a precaution? I'm wondering if you can give a sense on that. Second question on cost. So you previously guided EUR 1 billion total cost saving by 2020 and now is pleasant to hear that you have you expect additional EUR 100 million. So next year would be around EUR 200 million cost savings. Just wondering because you are still running your DFC remediation program. Are you kind of allocating your resources away from cost saving program to a degree? Or are you completely adding new staff to work on DFC program, if you have to, i.e., leaving the current cost saving program to run as planned? And also, just to clarify, if the DFC provision you have taken so far has been fully utilized, i.e., nothing is left now for next year and everything would go to P&L? Or do you still have some provision left? Maybe I don't understand completely the slides.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Right. I'll take the first on capital and buffers for AML. Going forward, I would say, of course, internally, we have scenarios, but externally, we will not guide on that.

[Clifford J. Abrahams, Vice]

In terms of cost savings. I think, as I said, that pipeline of cost savings is something we've talked about qualitatively, but we've not given numbers before. Those programs are -- have been well underway, well, since 2018. So we thought it was about time to indicate some of the numbers as we now got closer to that. In terms of resource allocation. Look we're committed to ensuring we're fully compliant and delivering on our detected financial crime activities. So in some cases, we've added staff. So you see we've recruited a lot of people, trained them and deployed them. But yes, there is a limited bandwidth in terms of change. We need to stay compliant, reduce costs and innovate for our clients. And I think it's always a balance. And right now I think it's a challenge to do all 3. And we're very focused on ensuring we're fully compliant. In terms of the provision, now, that -- you can see we've taken a total of EUR 85 million plus EUR 174 million. So that's roughly EUR 260 million in provision. We have at year-end 2019, over EUR 200 million of that provision remaining. So we've not spent it all year-to-date. And that's -- and we will release that provision against the remediation activities that will take place in 2021 and '22. And those provisions, as Kees mentioned, are for external costs. So when we hire contractors, for example, we can book that as a provision, but we will also undertake further costs, the little blue bars that you see there in respect of internal cost from remediation. Hopefully, that answers your question.

[Operator]

Next question is from Mr. Bart Jooris from Degroof Petercam.

[Bart Jooris, Analyst]

Most of them have been answered. Two more clarification questions, if I may. So looking back at Slide 7, you see around EUR 300 million DFC cost business as usual. You stated that, that could be automated, would that mean that there could be savings on top of the, let's say, EUR 100 million, EUR 200 million and EUR 300 million you foresee for the next 3 years? And then secondly, in the decision of the dividend you took into account an AML settlement. Could you confirm that if such a settlement would come that would not be included in the sustainable profit to calculate the dividend on?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Clifford the first, I will do the second.

[Clifford J. Abrahams, Vice]

Yes. I think the short answer to your first question is yes. I think we have clear plans in place that are very people intensive, and you can see that the FTEs going up to over 3,000 because we're committed to doing this right, getting on with it and doing it the right quality. Those plans extend through to 2022. And my expectation is at least a good part of that can be either automated or combined with other banks and there's much discussion here in the Netherlands regarding utilities for this. It will take time to do that. But I think, frankly, we have the time while we're getting on and implementing, we also have the time to think about the right end state operating model for these activities. And those will come over and above the EUR 0.3 billion that we set out. We also -- it's a long way off. So we need to consider other activities, other initiatives, both cost savings and also growth that we want to factor in through this period. But this should give you comfort that costs are well controlled, notwithstanding our commitment to DFC.

[Bart Jooris, Analyst]

So that should be beyond 2022 then?

[Clifford J. Abrahams, Vice]

Yes, yes. In the latter part of that period and beyond. Yes. I mean the remediation activity, we expect to conclude during 2022, that's our current plan. And so that you see that gray box that represents the business as usual activity. We've almost doubled it and over a short period of time. You can see that '18, '19, '20, as we ramp up. We -- I think we're doing the right things there, but we've had that on a focus on speed and compliance and at this stage, not on sort of efficiency and effectiveness in an end state model, and we have some time to work that through. And that gives opportunity in those later years.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

With respect to your question around being AML, taking into account and sustainable dividend or not, I think in a year's time, the team will look into, what's the total capital position of the bank at that moment in time. And of course, first of all, if there's an AML fine in a year's time, we don't know. And if so, how big.

[Operator]

Next question is from Mr. Jason Kalamboussis from KBC Securities.

[Jason Kalamboussis, Executive Director Research]

Just a quick one on private banking fees. They have been better this quarter. And I just wanted to have an idea of how you're looking at those next year. And also the assets under management. We have seen outflows, but they have been within it, for what I understand, some structural moves that we may not see next year. So again, if you could comment on these 2, that would be great. And so what about to come back on the payout ratio, the 62%. This keeps -- I mean given the negative surprise on earnings, this gives the signal that basically you just follow earnings because you probably are holding back just in case you have a relatively large fine, is that the case? Or -- because I would have thought that it wouldn't have been -- that would have been possible for you to at least give some positive signal by increasing slightly the payout without, in a certain way endangering or having any issues on no matter what the fine will be, especially that you seem to be slightly more positive. That at the end of the day, it's not going to take 2.5 years, going to come earlier, et cetera?

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

With respect to the fees in assets under management. Let me start, Clifford, perhaps you can chip in. The assets under management decline, indeed, is a bit over EUR 5 billion, and that's I think related -- as mentioned that around EUR 3 billion is related to less custody and on custody, of course, the -- well, the fees are much, much lower than, of course, on mandates in general. And around -- I think around EUR 1.5 billion is cash. So we actually don't have a problem with that, actually, with the decline. It's not all mandates and the stuff where we really have big, of course, fees -- bigger fees on. With respect to development, perhaps you can say something on that Clifford. And the payout ratio, we have said in the past that we basically have a payout approach, and the 62%, you say, is -- you mention all the time, the fine. But actually, what we mention is actually all the developments that are at this moment in time unclear. And there are -- and that's much more related to TRIM, actually, and definition of default and the likes and the Basel IV European Commission decisions and the fine also, of course, but it's not only related to the fine. It's not our reasoning.

[Clifford J. Abrahams, Vice]

Yes. I think we covered fees. I think in case you were referring to the outflows. So we're pretty pleased with how the private bank is performing. We've seen some net new asset outflows, which were largely lower margin custody business. We've seen inflows elsewhere and a general uplift in the market. We had a strong market as well as a shift back from cash into discretionary assets that we saw in Q4. So net-net, you can see that pickup in fees, which is pleasing to see, and we always expect some volatility in that business and beyond, which is why we're coming out clearing as the negative Q4, but volatility goes both ways. So I would expect some normalization of that going forward. And private banking is a business we like, we think we can grow. And following the decision to charge negative rates, that benefits the private bank, in particular, where those clients have large balances. Clearly, it's for clients to decide what they do with their money, and we want them to do the right things, but by passing on negative rates, when our peers are demonstrating, call it, the cost of low risk right now that's exactly what the ECB is trying to do. And that should encourage a switch to riskier, but potentially a higher returns assets that we would benefit from.

[Jason Kalamboussis, Executive Director Research]

If I may have just a quick follow-up. The cash into discretionary assets, is it something that is -- we should be continuing to think about EUR 0.5 billion to EUR 1 billion per annum?

[Clifford J. Abrahams, Vice]

No, I think that was -- I was making a comment about sort of portfolio management. So it reflects our clients' risk appetite, the advice we give them, not the switch from the retail bank to the private bank. I think -- I mean we've all got views on this, but as markets have got higher, our clients have been quite cautious last year through volatility. But I think we're seeing increasing signs that as the cost of holding cash comes through -- and in the Netherlands, there's also a wealth tax, we may see more risk appetite on the part of our clients, and we want to support them in that, and that should benefit the business.

[Operator]

It appears that there are no further questions, so I'll hand back to you, sir.

[Kees C. van Dijkhuizen, Chairman of Executive Board & CEO]

Well, thank you very much, operator, and thank you very much all for all the questions you raised. This then concludes the Q4 result update, my last one, as CEO. I would like to thank you all for all your questions and valuable feedback in the last few years. It was a real pleasure to work with you in the last 7 years as CEO and CFO. And thank you very much, and goodbye.

[Operator]

Ladies and gentlemen, this concludes the ABN AMRO Q4 2019 Analyst and Investors call. You may now disconnect your lines. Thank you, and have a nice day.