Fortis profit dips 31%, hurt by write-downs

Belgian-Dutch financial services group Fortis reported yesterday worse than expected 31 per cent fall in net profit, hurt by write-downs that gains from its ABN buy failed to fully offset.

ABN contributed €319 million to banking profit, slightly less than the range of €350m to €370m analysts had projected.

That was offset by a charge of €380m from sub-prime, structured credit and related investments in the first quarter.

Financial market turmoil in the first quarter has also hurt Europe's other banks and insurers, forcing some to seek to raise capital to patch up finances damaged by the credit crisis.

Royal Bank of Scotland, which with Fortis and Santander last year bought and split up ABN Amro, unveiled a £12bn (Dh169bn) rights issue last month to shore up its balance sheet.

Fortis, which wrote down €1.5bn on sub-prime related investments in the previous quarter, is planning to raise about €1bn via a perpetual bond issue, said Chief Financial Officer Gilbert Mittler.

Fortis, which sold a stake to China's Ping An, has also agreed to sell half its asset management unit to the Chinese insurer.

Fortis Chief Executive Jean-Paul Votron noted the further deterioration of financial markets in the second half of March and added: "We believe that the environment will continue to be challenging for the foreseeable future."

Fortis also took a charge of €132m related to its integration of ABN and other investment-related fair value changes.

"Fortis [share] remains undervalued when compared to peers, and concerns on the ABN integration and solvency are clearly overdone," said Bank Degroof analyst Ivan Lathouders in a note.

Fortis said it held €43.3bn in structured credit investments at the end of the first quarter, down €4.9bn from the previous period.

Most of that was not recorded in Fortis' profit-loss account as many of the investments remained "fundamentally sound", despite the decline in their value due to changes in credit spreads, the group said.

Fortis' total structured credit portfolio included €2.3 billion of US sub-prime collateralised debt obligations, €38.5bn of credit investments and around €2.5bn in insurance asset-backed securities.

Fortis said its capital adequacy stood at a core Tier 1 ratio of 9.5 per cent at the end of the quarter, based on Basel II rules that require banks to record assets according to risk.

Fortis CFO Mittler said there was no change in Fortis' view that the ratio would fall to 5.4 per cent as it integrates ABN into its operations throughout 2008 and 2009.

Fortis said it had a banking profit of €721m and insurance profit of €219m, and both included writedowns on investments.

Analysts had forecast banking profit of €891m and insurance profit of €360m. (Reuters)