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Rating Action:

Moody's downgrades Fortis' ratings

27 Jun 2008
Moody's downgrades Fortis' ratings

Paris, June 27, 2008 -- Moody's Investors Service has today announced that it has downgraded Fortis Bank SA/NV's bank financial strength rating (BFSR) to C+ from B- and its long term debt and deposits ratings to Aa3 from Aa2. Furthermore, the BFSR of C+ has been placed on review for possible downgrade while the outlook on the long term debt and deposit ratings remains stable. Ratings of subordinated and junior subordinated debts issued by the different entities of the Group are detailed at the end of this press release. Short-term debt and deposit ratings are affirmed at Prime-1.

Moody's has also downgraded Fortis Group's debt ratings as well as the ratings of the other banking and insurance operations of the Group. Fortis N.V. and Fortis SA/NV long term issuer ratings have been downgraded to A1 from Aa3 with a stable outlook. The insurance financial strength ratings of Fortis Insurance Belgium, Fortis ASR Schadeverzekering N.V. and Fortis ASR Levensverzekering N.V. have been downgraded to A1 from Aa3, with a stable outlook.

The rating action is triggered by the announcement made by Fortis regarding the unfavourable conditions of the sale of ABN AMRO's Dutch activities imposed by the European Commission remedies ruling, the planned acquisition of the joint venture with Delta Lloyd in the Netherlands and expectations of a continued challenging economic environment. Moody's believes that the realised losses on divestments as well as the acquisition planned will further deteriorate the bank's and Group's capitalisation while the measures envisaged by the Group will further deteriorate its financial flexibility.

On March 5th, 2008, Moody's changed Fortis' ratings outlook to negative from stable motivated by Fortis' tight capitalisation both in terms of quality and in absolute terms and the deterioration of Fortis' financial flexibility. On May 14th, 2008, commenting on the first quarter results of Fortis' Group, Moody's reiterated its assessment on the Group's capitalisation levels and underlined additional impairments and a significant increase of unrealized losses in its structured credit portfolio.

Adverse market conditions experienced during the first half of 2008 have indeed led Fortis to report additional write-downs and impairments on its equity and structured credit portfolio. Moody's said that in line with the stress tests that it is applying to financial institutions with important structured credit exposures, it had reviewed Fortis Bank's and Fortis Group's exposures to this asset class. While Fortis' stressed marks are still 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.

Commenting further on the rating action, Moody's noted that Fortis has announced on 26 June 2008 a number of measures to rebuild its capital and solvency position (increase of capital of EUR1.5 billion; no payment of interim dividends and payment of full-year 2008 dividends in shares; EUR2 billion issuance of non-dilutive capital instruments; capital relief programme and lease-back transaction of real estate for EUR1.5 billion; additional assets sales expected to lead to a total solvency uplift of EUR 2 billion). However, Fortis' new plans once achieved would only enable the Group to reach a Tier 1 ratio level close to its target of 7% under Basel I. Moreover, the new increase in capital and the issuance of new hybrids will further deteriorate the financial flexibility of the Group.

More specifically on the BFSR of Fortis Bank SA/NV, Moody's believes that adverse market conditions have also impacted the bank's profitability already affected by ABN AMRO integration cost with minimal synergies at this stage. Moody's review of Fortis Bank SA/NV's BFSR will therefore also focus on the impact on profitability of the new asset disposals of non-core and mature activities generating recurring revenues. The review will be concluded after the publication of Fortis' 2008 half-year results. A review for possible downgrade of the BFSR of Fortis Bank Nederland (Holding) and Fortis Banque Luxembourg, will be completed shortly (please refer to the entities listed below).

Moody's notes that a further downgrade of Fortis' BFSR to C would not likely be followed by a similar movement of the Aa3 long-term debt and deposit ratings under current circumstances since the high degree of imputed systemic support leads to higher stability in the debt and deposit ratings despite changes in the bank's intrinsic financial strength. The outlook on the Aa3 long-term debt and deposit ratings therefore remains stable.

The stable outlook also reflects Moody's expectations that Fortis management is likely to deliver the measures mentioned above but also underlines the importance of execution risk linked to most of the new measures as challenging market conditions currently prevail while the bank is already significantly exposed to integration risk linked to the acquisition of ABN AMRO's Dutch activities. Inability to successfully achieve the announced measures may trigger further rating actions.

Regarding the ratings of the European insurance companies of the Group, Moody's noted that the underlying fundamentals of the insurance operations have not changed materially in the last few months. However, Moody's expresses some concerns on the insurance market in the Netherlands, especially in the life segment, where we anticipate a significant slowdown. This may be partly mitigated by the potential acquisition of the remaining stake of the joint-venture with Delta Lloyd, which will enable Fortis to develop its bancassurance channel in this country. Nonetheless, the conditions of this acquisition are still unclear. Furthermore, Moody's believes that the bank and group financing needs have a negative impact on capitalisation levels and financial flexibility of the insurance operations, as evidenced by the upstream of EUR2 billion dividends at year-end 2007. Moreover, the rating action on the European insurance operations reflects the level of integration of insurance with the bank and thus potential contagion risk. Moody's will comment on Asian insurance operations in a separate press release.

Headquartered in Brussels, Belgium and in Utrecht, the Netherlands, Fortis Group has total assets of EUR 871.2 billion and reported shareholders' equity (including minority interest) of EUR 34.2 billion as of December 31st 2007.

Moody's took the following rating action:

Fortis Bank SA/NV,

- Bank Financial Strength Rating downgraded to C+ from B- and on review for possible downgrade

- Long term deposit rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured MTN rated downgraded to Aa3 from Aa2, outlook stable

- Long term senior subordinate rating downgraded to A1 from Aa3, outlook stable

- Long term subordinate rating downgraded to A1 from Aa3, outlook stable

- Long term subordinate rating downgraded to A1 from Aa3, outlook stable

- Long term junior subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Long term junior subordinate rating downgraded to A3 from A2, outlook stable

- Preferred stock rating downgraded to A2 from A1, outlook stable

- Backed junior subordinate rating downgraded to A3 from A2, outlook stable

- Backed preferred stock rating downgraded to A2 from A1, outlook stable

- Short-term deposit rating affirmed at Prime-1

- Short-term bank note program rating affirmed at Prime-1

Fortis Bank Nederland

- Bank Financial Strength Rating of B- on review for possible downgrade

- Long term deposit rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured MTN rated downgraded to Aa3 from Aa2, outlook stable

- Long term subordinate rating downgraded to A1 from Aa3, outlook stable

- Long term subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Long term junior subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Backed subordinate rating downgraded to A3 from A2, outlook stable

- Short-term deposit rating affirmed at Prime-1

Fortis Bank Luxembourg

- Bank Financial Strength Rating of B on review for possible downgrade

- Long term issuer rating downgraded to Aa3 from Aa2, outlook stable

- Long term deposit rating downgraded to Aa3 from Aa2, outlook stable

- Long term deposit Note/CD program rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured MTN rating downgraded to Aa3 from Aa2, outlook stable

- Long term subordinate rating downgraded to A1 from Aa3, outlook stable

- Long term subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Long term junior subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Short-term deposit rating affirmed at Prime-1

- Commercial paper rating affirmed at Prime-1

Fortis Funding LLC

- Backed commercial paper affirmed at Prime-1

Fortis Capital Company Limited

- Backed preferred stock rating downgraded to A2 from A1, outlook stable

Fortis Luxembourg Finance

- Backed senior unsecured MTN rating downgraded to Aa3 from Aa2, outlook stable

- Backed senior subordinate rating downgraded to A1 from Aa3, outlook stable

- Backed subordinate rating downgraded to A1 from Aa3, outlook stable

- Backed subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Backed junior subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Backed commercial paper affirmed at Prime-1

Fortis Hong Kong

- Long term senior unsecured MTN rating downgraded to Aa3 from Aa2, outlook stable

- Short-term deposit rating affirmed at Prime-1

Fortis New York

- Long term senior unsecured rating downgraded to Aa3 from Aa2, outlook stable

- Long term senior unsecured MTN rating downgraded to Aa3 from Aa2, outlook stable

- Long term deposit note / CD program downgraded to Aa3 from Aa2, outlook stable

- Long term deposit rating downgraded to Aa3 from Aa2, outlook stable

- Long term subordinate MTN downgraded to A1 from Aa3, outlook stable

- Long term junior subordinate MTN downgraded to A1 from Aa3, outlook stable

Fortis Bank, Cayman Islands

- Backed senior unsecured MTN rating downgraded to Aa3 from Aa2, outlook stable

- Backed subordinate MTN rating downgraded to A1 from Aa3, outlook stable

- Backed junior subordinate MTN rating downgraded to A1 from Aa3, outlook stable

FB Funding Company

- Backed commercial paper affirmed at Prime-1

Fortis SA/N.V.

- Long term issuer rating downgraded to A1 from Aa3, outlook stable

Fortis N.V.

- Long term issuer rating downgraded to A1 from Aa3, outlook stable

Fortis Finance N.V.

- Backed senior unsecured rating downgraded to A1 from Aa3, outlook stable

- Backed senior unsecured MTN rating downgraded to A1 from Aa3, outlook stable

- Backed subordinate MTN rating downgraded to A2 from A1, outlook stable

- Backed junior subordinate MTN rating downgraded to A2 from A1, outlook stable

- Backed commercial paper affirmed at Prime-1

Fortis ASR Schadeverzekering N.V.

- ISFR downgraded to A1 from Aa3, outlook stable

Fortis ASR Levensverzekering N.V.

- ISFR downgraded to A1 from Aa3, outlook stable

Fortis Floating rate Capital Funding Trust

- Backed preferred stock rating downgraded to A3 from A2, outlook stable

Fortis Fixed Rate Quarterly Capital Funding Trust

- Backed preferred stock rating downgraded to A3 from A2, outlook stable

Fortis Fixed Rate Annual Capital Funding Trust

- Backed preferred stock rating downgraded to A3 from A2, outlook stable

Fortis Capital Funding LLP

- Backed preferred stock rating downgraded to A3 from A2, outlook stable

Fortis Insurance Belgium

- ISFR downgraded to A1 from Aa3, outlook stable

Fortis Hybrid financing

- Backed junior subordinate rating downgraded to A3 from A2, outlook stable

- Backed preferred stock rating downgraded to A3 from A2, outlook stable

Fortfinlux SA

- Backed junior subordinate rating downgraded to A3 from A2, outlook stable

Paris
Virginie Merlin
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Reynold R. Leegerstee
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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