Moody's changes outlook to negative on Fortis
London, 05 March 2008 -- Moody's Investors Service announced today that it had affirmed all of
the ratings of Fortis and has changed the rating outlook to negative from
stable on Fortis SA/NV, Fortis NV (both with issuer ratings at Aa3),
and all of their main operating subsidiaries (bank deposits at Aa2,
BFSR at B-, and IFSR at Aa3). Please refer to the
rating list below for further details.
Commenting on the outlook change, Moody's noted the combination
of the recent deterioration of the group's capital position and
financial flexibility, as well as the potential for further capital
markets-led pressures. "The negative outlook reflects
Moody's expectation of a challenging recovery in the short to medium
term of Fortis Group's underlying credit fundamentals, in
the context of an uncertain macro-economic environment, a
major integration initiative for the group with the acquired ABN AMRO
businesses, and potential additional depreciation to certain of
Fortis' pressurised assets" said Jose Morago, Moody's
Assistant Vice-President/Analyst and lead analyst for Fortis Group.
In terms of the Group's financial flexibility, Moody's
said that in its view this had deteriorated recently, in the context
of the hybrid raising initiatives to support the capitalisation of the
banking operations as well as the funding of the ABN acquisition.
As a result, compared to historical levels, Fortis'
financial leverage and fixed charge coverage are likely to be over Moody's
expectation for the rating levels in the short to medium term.
Moody's added that any further capital markets-induced pressures,
for instance further writedowns of structured assets, would add
to these pressures. Furthermore, Moody's noted the
significant increase of the group's hybrid usage, whereby
hybrid capacity will be nearly exhausted in the short-term.
With reference to the Fortis Bank ratings, Moody's said that
in line with the stress tests that it is applying to financial institutions
with important CDO exposures, it had reviewed Fortis Bank's
exposures to this asset class. While Fortis' stressed marks
are considered broadly adequate, the rating agency said that in
line with its analysis for financial institutions, it had taken
a conservative view of the potential need for additional write-downs
given the continued challenging market conditions. "The negative
outlook reflects Moody's opinion of the prospect for additional
impairments and reduced recurring earnings given the important revenue
contributions from the bank's merchant banking activities.
The negative outlook also reflects the weakened capitalisation of the
bank both in terms of quality and absolute levels", said Lynn
Exton, Senior Vice President and lead analyst for Fortis Bank.
Moody's said that it views a Tier 1 ratio in line with the bank's
target of 7%, excluding the impact of the capital raised
to finance the acquisition of ABN AMRO and calculated on a Basel 1 basis,
as an appropriate level for Fortis Bank to remain within its present rating
category. If the Tier 1 ratio were to be broadly below the target
level of 7% level on a Basel 1 basis and net of the impact from
the ABN AMRO financing, for a prolonged period, the bank's
ratings would be under additional negative pressure.
Regarding the Group's insurance ratings, Moody's noted
that even though the underlying fundamentals of the insurance operations
have not changed materially in the last few months, the outlook
change reflects the potential for pressure on capitalisation levels and
financial flexibility of the insurance ratings, in the context of
the bank's/group's needs. It also reflects the level
of integration of insurance with the bank/group, in terms of capital
management, risks management and asset management, and thus
potential contagion risk.
Regarding the ABN AMRO acquisitions Moody's noted that despite the
good strategic rationale of the transaction, in the context of the
challenges above, the integration of ABN AMRO operations represent
an additional burden on the group's ratings in the short to medium
term.
Moody's also affirmed and maintained a positive outlook on the A3 IFSR
of FICA, the group's life insurance subsidiary headquartered in
Hong Kong, considering that there are no material changes in the
company's fundamentals or the level of implicit support from the parent
Fortis Group. The positive outlook continues to reflect our expectation
that FICA's business and financial profile will improve over the
medium-term due to changes made to its operations following its
ownership and involvement of Fortis Group in Asia.
Moody's added that the negative rating outlook on Fortis'
main operating entities could return to stable in the event of improvements
to Fortis' risk profile, capital position and financial flexibility
in the next 12 to 18 months. Specifically, strong operating
results for 2008 consistent with limited write downs on structured assets,
a strong capital replenishment consistent with a banking Tier I ratio
of at least 7% and consolidated financial leverage no higher than
the low 30s could result in an outlook change to stable. On the
other hand, further deterioration in or a sustained weakness in
capital position and financial flexibility could result in a rating downgrade
in the short-term.
The last rating action on Fortis was in November 2007 when Moody's assigned
rating to Fortis' CASHES.
Headquartered in Brussels, Belgium and in Utrecht, the Netherlands,
Fortis Group had total assets of EUR 775.2 billion and reported
shareholders' equity (including minority interest) of EUR 21.6
billion as of 31 December 2006.
The following ratings were affirmed with a negative outlook:
Fortis SA/NV, Issuer Rating, Aa3
Fortis NV, Issuer Rating, Aa3
Fortis Finance NV, guaranteed senior debt, Aa3
Fortis Finance NV, guaranteed subordinated debt, A1
Fortis Hybrid Financing, guaranteed preferred debt, A2
Fortis Utrecht NV, guaranteed senior debt, Aa3
Fortis Utrecht NV, guaranteed subordinated debt, A1
Fortis Floating Rate Capital Funding Trust, guaranteed preferred
debt, A2
Fortis Fixed Rate Quarterly Capital Funding Trust, guaranteed preferred
debt, A2
Fortis Fixed Rate Annual Capital Funding Trust, guaranteed preferred
debt, A2
Fortis Capital Funding LP, guaranteed preferred debt, A2
Fortfinlux S.A., guaranteed equity linked securities,
A2
Fortis Bank Nederland (Holding), long-term deposit and senior
debt, Aa2, BFSR B-
Fortis Bank SA/NV, long-term deposit and senior debt,
Aa2, BFSR B-
Fortis Banque Luxembourg, long-term deposit and senior debt,
Aa2, BFSR B
Genfinance Luxembourg S.A- Aa3 guaranteed subordinated debt
rating
Fortis Luxembourg Finance S.A.-Aa2 senior debt rating
Fortis Bank (Hong Kong)-Aa2 senior debt rating
Fortis Bank, New York-Aa2 senior debt rating
Fortis Bank, Cayman Islands-Aa2 senior debt rating
Fortis Insurance Belgium, Insurance Financial Strength Rating,
Aa3
Fortis ASR Levensverzekering N.V., Insurance Financial
Strength Rating, Aa3
Fortis ASR Schadeverzekering NV, Insurance Financial Strength Rating,
Aa3
The following ratings were affirmed:
Fortis Finance NV, guaranteed Prime-1 short-term debt
and CP rating
Fortis Bank Nederland (Holding),: short-term debt and
deposit rating of Prime-1
Fortis Bank SA/NV: short-term debt and deposit rating of
Prime-1
Fortis Banque Luxembourg: short-term debt and deposit rating
of Prime-1
FB Funding Company: short-term debt rating of Prime-1
The following ratings were affirmed with a positive outlook:
Fortis Insurance Company (Asia) Ltd, Insurance Financial Strength
Rating, A3
Fortis Capital (Asia) Ltd, backed senior unsecured debt rating,
Baa1
London
Jose Morago
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Lynn Exton
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
