(AFP) – Jun 26, 2008
THE HAGUE (AFP) — Fortis shares slumped more than 19 percent Thursday after the Belgian-Dutch bank announced plans to raise eight billion euros (12.5 billion dollars) to help it cope with the global credit crunch.
As the company sought to give assurances that its solvency was strong and that the move would boost resilience, it also had to deal with the realities of turbulent financial markets fearful about further losses due to the US subprime home loan crisis.
"We believe that 2008 will be a difficult year for our industry and we do not expect an improvement in the economic environment soon," chief executive Jean-Paul Votron said in a statement announcing the plan.
"While our solvency today is strong, the announced measures prepare us for the road ahead, which we believe is a prudent approach to take in the current environment."
Fortis said the step was also in part to offset lower-than-expected prices realised on the sale of Dutch commercial banking businesses under European Commission rules as part of its acquisition of Dutch bank ABN Amro.
By the close of business, Fortis shares were down 19.37 percent at 10.20 euros in Amsterdam where the main AEX index dropped 3.08 percent.
In Brussels, the Bel-20 index lost 4.64 percent.
The plan announced by Fortis directors Thursday would see the group issue new shares worth 1.5 billion euros (2.4 billion dollars) to shore up its finances.
The bank would also scrap its interim dividend this year to save about 1.3 billion euros, issue new debt and divest non-core assets and real estate to the tune of some 3.5 billion euros.
On Thursday night, Fortis announced that its bookbuilding offering was completed after "substantial demand" from institutional investors.
"Merrill Lynch International, JP Morgan, Morgan Stanley and Fortis Bank have accordingly, placed 150,000,000 new Fortis unified shares at EUR 10.00 per New Share; the total gross proceeds of the offering amount to EUR 1.5 billion," said a statement.
"Settlement of the offering is expected to take place on or around 2 July 2008."
Analysts said the move should bolster Fortis as it plans for the future.
"If Fortis carries out its plan, that will give it a financial margin ... (and) reserves for if the situation were to deteriorate further," said Ton Gietman of the Petercam bank.
Cyril Meilland, an analyst at Lehman Brothers, said the move would provide "a comfortable cushion" against the possibility the credit crunch, sparked by the US subprime collapse, could get worse.
Paul Beijsens at Theodoor Gilissen private bank said Fortis was set to raise five billion euros more capital than it needed to meet current requirements.
"This leaves some room for some impairments and writedowns and room for a weakening in the financial markets," he said.
But ratings agency Standard and Poor's reacted to the news by placing the company on CreditWatch, with negative implications.
"While Fortis remains committed to its initial capital targets for year-end 2009, the implementation of these measures will take place in a difficult environment," Standard and Poor's credit analyst Elisabeth Grandin said in a statement.
Fitch Ratings, however, affirmed Fortis' rating as "stable."
Fortis follows in the footsteps of several international banking giants, among them Citigroup of the United States and UBS of Switzerland, that have had to raise new capital to repair balance sheets battered by the collapse of the US subprime home loan market last year.
Last year, Fortis bought part of Dutch rival ABN Amro as part of a trio of banks in a 70-billion-euro deal. Shortly after winning the takeover battle, the US housing crisis erupted.
- Dow Jones Newswires contributed to this story -
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