Belgium's KBC bank swings to 3Q loss on writedowns

BRUSSELS, Belgium - Belgium's KBC bank on Thursday said it swung to a loss of 906 million euros (US$1.16 billion) in the third quarter after it wrote off 1.4 billion euros (US$1.8 billion) from the value of complex financial investments.

About 1.1 billion euros ($1.42 billion) of the total writedowns were on so-called collateralized debt obligations — investments backed up by assets, such as sub-prime mortgages. It also took a hit on shares and on exposure to U.S. investment banks Lehman Brothers and Washington Mutual, which both collapsed in September.

KBC made a net profit of 639 million euros in the third quarter of 2007.

CEO Andre Bergen cautioned that a sharp slowdown in Europe may see more loans default, saying "it is expected that the loan loss trend will remain upwards for the next quarters."

KBC insisted its other operations were still strong despite a difficult climate as credit markets seized up in recent months. It claimed that, without the writedowns, it would have made a 551 million euro ($709 million) profit from the rest of its business.

The bank warned last month it would likely report a loss as credit rating agencies downgraded the complicated structured credit investments — often based on housing loans — that have plummeted in value on worries that more mortgage payments will default during the downturn.

Bergen said the bank's financial position "remains solid and the more so" after it received a 3.5 billion euro ($4.4 billion) capital injection from the Belgian government last week, becoming the latest of the country's bank to seek government help.

Unlike other Belgian banks that received a state bailout — Fortis and Dexia — KBC was seen as a more prudent investor that pushed into banking in central and eastern Europe instead of the high-risk investments that led many European banks into trouble.

But it has not been immune to financial shockwaves and Bergen said the bank "could not have imagined that it would last so long and be so deep."

The bank said it has taken measures to reduce the impact on its earnings of any more ratings downgrades of its credit assets. It said it has an exposure of 277 million euros ($356 million) to three Icelandic banks but had not yet decided whether to report this as a loss.

KBC employs around 50,000 people and has 12 million customers. It made a profit of 3.28 billion euros in 2007.

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