Fortis Seeks $12.5 Billion Solvency Boost

Fortis said on Thursday that it plans to shore up its finances with measures worth more than €8 billion ($12.56 billion), including issuing new shares, hitting its stock on dilution worries.

The Belgian-Dutch financial services group said it would issue €1.5 billion ($2.356 billion) in new shares, plus up to €2 billion ($3.14 billion) of non-dilutive preference shares. It will save €1.3 billion ($2.04 billion) by not paying an interim 2008 dividend, and will also sell non-core assets and sell and lease back real estate.

“We believe that 2008 will be a difficult year for our industry and we do not expect an improvement in the economic environment soon,” Fortis Chief Executive Jean-Paul Votron said in a statement. “The measures announced today will help Fortis navigate through the current challenging market circumstances.”

One analyst said the measures would go some way to dispel worries about the company’s finances but were dilutive. “There were lots of worries regarding Fortis’ capital action. These actions will take away some of these worries,” said Theodoor Gilissen analyst Paul Beijsens. “Unfortunately because of the excess shares, there will be share dilution which is a negative thing for shareholders.”

Fortis shares were down 11.1 percent at €11.27 ($17.68) by 0807 GMT, making it the biggest loser on the DJ Stoxx index of European banks, which was down 1.9 percent.

Reeling from the credit crunch like other global banks, Fortis had already sought to raise more capital by selling a 5 percent stake in the group and half its asset management business to China’s Ping An Insurance Co Ltd.

It also needs funding for its €24 billion ($37.7 billion) acquisition and integration of parts of its former Dutch rival ABN AMRO.

The new Fortis plan comes after British bank Barclays, which has one of the thinnest capital cushions among European banks, said on Wednesday it had raised £4.5 billion ($8.88 billion) from investors without a rights issue.

Analysts said the steps should boost Fortis Bank’s core Tier 1 ratio — a key measure of financial strength based on capital available against perceived risk — by about a percentage point.

Fortis said the plan would help keep the ratio be well above 6 percent by the end of 2009. That compared to 8.5 percent at the end of the first quarter, but that figure did not yet include the impact of the ABN buy including goodwill deductions.

Fortis said its banking and insurance businesses continued to be resilient despite the tough market and it expected second quarter results in line with or slightly above the previous quarter, when it booked a charge of €380 million ($598 million) from subprime, structured credit and related investments.

“Lower capital gains are anticipated to be offset by lower impairments on the structured credit portfolio,” it said.

“After an initial relief that the ‘news is out’ and Fortis has bitten the bullet, we think that doubts will come back soon,” Petercam analyst Ton Gietman said in a note, adding that further write-downs might be necessary.

Fortis said it hoped to resume its policy of paying cash dividends as early as the interim 2009 dividend. Its full-year dividend will be paid in shares based on full-year profit.
t said it expected the sale of mature non-core assets to boost solvency by about €2 billion ($3.14 billion), while a capital relief program and a sale and lease-back transaction of real estate should raise around €1.5 billion ($2.356 billion).

Fortis said it would place the €1.5 billion in new shares with institutional investors. It has agreed a 180-day lock-up period with the joint bookrunners: Merrill Lynch, JP Morgan, Fortis Bank and Morgan Stanley.

Fortis said ABN expected to agree soon the sale of parts of its Dutch businesses, including factoring company IFN Finance which could go for €300 million ($471 million) below net asset value. It said ABN might have to provide credit risk coverage of around €10 billion ($15.7 billion) of risk weighted capital of those assets.

Fortis acquired ABN’s Dutch operations, private banking and asset management businesses after buying the Netherlands’ biggest bank in a consortium with Royal Bank of Scotland and Santander last year for €70 billion ($110 billion).

(Additional reporting by Harro ten Wolde; Editing by Paul Bolding)