KBC Profit Tops Forecasts, US Impact Limited

Belgian banking and insurance group KBC reported a forecast-beating 5 percent rise in third-quarter underlying net profit and said the impact of the U.S. financial markets turbulence would be limited.

KBC's underlying net profit for the July-Sept period rose to 601 million euros ($879.7 million), from 574 million euros a year ago and compared with the average forecast of 591 million euros from a Reuters poll of six analysts.

"Market circumstances are not favourable for anyone but these results are slightly above expectations," said Bank Degroof analyst Ivan Lathouders.

KBC shares opened up 3.16 percent after the results. In its outlook, KBC said the fourth quarter had got off to a good start and that financial market turbulence was not a threat to the group meeting its targets.

"We have a set of financial targets for the medium term; temporary market turbulence is not a threat to our meeting these targets," said KBC chief executive Andre Bergen in a statement.

KBC has set a target for its average earnings per share growth of at least 12 percent in the period 2007-2009.

Limited Exposure to Subprime

KBC said on Friday that its exposure to the U.S. subprime market during the third quarter had been limited, although it recorded a negative post-tax value of 39 million euros on revaluation of collateralised debt obligations (CDO).

A sharp drop in the share price last month had prompted KBC to issue a statement, saying that its exposure would be limited but analysts had been keen for details of the negative mark-to-market impact on KBC's investment portfolio, notably of its riskier CDOs.

By business unit, KBC reported a 14 percent year-on-year rise in underlying net profit for its Belgian operations to 303 million euros, beating expectations for a profit of 284 million.

In central and eastern Europe, underlying net was up 7 percent at 117 million euros, slightly below expectations for a profit of 130 million euros.

Trading Income Down

Merchant banking came in at 153 million euros, beating expectations for a profit of 147 million but down 5 percent year-on-year, while the European Private Banking division posted a drop of 1 percent to 44 million euros, a shade worse than the forecast 47 million.

For the first nine month's of the year KBC's net interest income, generated from interest-bearing products, rose 7 percent year-on-year while fee and commission income rose 9 percent.

Trading income, however, was down by 5 percent.

Shares in KBC trade at just under 10 times projected 2007 earnings and have dropped 4.5 percent this year, while those of Belgian-Dutch peer Fortis trade at 7 times and have dropped more than 30 percent.

Fortis, which is buying ABN AMRO's Dutch operations, reported a 10 percent fall in quarterly net profit on Thursday and warned of subprime-related loss, sending its shares down to a 28-month low.