Fortis Profit Halves on Subprime, Hints at Deal


Dutch-Belgian financial services group Fortis said its profit halved in the fourth quarter after a 1.5 billion euro ($2.3 billion) subprime-related writedown.

Net profit, which also included gains from Fortis's 2007 acquisition of ABN Amro's Dutch business and divestment of a joint venture, fell by a worse-than-expected 48 percent to 414 million euros from a year earlier, it said on Friday.

That was below the 538 million euros projected by analysts polled by Reuters, according to the average of four forecasts.

Fortis also said it was in exclusive negotiations on a deal that would boost its solvency, but gave no further details.

"We have been engaged in exclusive negotiations on another transaction that will further strengthen our solvency substantially," Fortis Chief Executive Jean-Paul Votron said in a statement.

The market seized on the news of a deal and pushed Fortis shares over 2 percent higher, said one Amsterdam trader, reversing a near 5 percent decline. Another trader said there was relief that Fortis had confirmed its subprime impact.

Fortis shares, which fell 34 percent in 2007 as it pursued ABN Amro and during the subprime crisis, ended at 14.77 euros, up 3.3 percent. The DJ Stoxx European banking index was off 0.6 percent.

"Reported earnings were much lower than expected, but we welcome the fact that Fortis has opted for the worse case scenario when taking out subprime losses," KBC Securities analyst Dirk Peeters said in a note.

Fortis is the latest among the world's biggest financial groups to report a loss from exposure to subprime-related debt, which has caused UBS and Credit Suisse in Europe to take billions of euros in writedowns.

Fortis said its portfolio of subprime collateralized debt obligations (CDOs) now stands at 2.9 billion euros.

Petercam analyst Ton Gietman said the disclosure of the impact of subprime investments was too little, too late, calling it "shamefully high."

Still Fortis, along with peers ING and Rabobank, escaped the worst of the credit crisis, in which investments in subprime mortgages to risky U.S. borrowers turned sour, triggering a global liquidity crunch and forcing financial groups to provide for double-digit billions in losses.

Votron said markets would "remain challenging for the foreseeable future," adding the group could weather any turmoil and was taking steps to curtail investment activities in CDOs.

Moving Parts

Fortis also reported a capital gain of 947 million euros on the sale of its CaiFor joint venture with Spain's La Caixa.

ABN's contribution to Fortis's results was 179 million euros for the period since mid-October that it was owned by Fortis.

For the full year, profit at the Dutch activities of ABN that Fortis is acquiring rose 17 percent to 1.355 billion euros.

Fortis was party to the largest-ever banking takeover last year, joining up with Royal Bank of Scotland and Santander to buy ABN Amro for 70 billion euros.

Fortis said its core Tier 1 capital ratio at the end of 2007 stood at 8.6 percent, above the level required by banking regulation and a point of major concern among investors.

Votron told reporters on a conference call that the ratio would remain strong in 2008, saying, "We will remain close to or above capital ratio requirements."

For the full year, Fortis net profit dropped 8 percent to 3.99 billion euros from 4.35 billion euros a year earlier, including the charges on its exposure to subprime-related debt.

Excluding the CaiFor gain, Fortis had a profit of 3 billion euros, below the 4.16 billion euros average forecast in a Reuters survey of eight analysts.

Because of the magnitude and timing of the divestments, acquisitions and writeoffs, predicting fourth-quarter results has been especially tricky for analysts.