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30 Sep 2008
Moody's downgrades Fortis' ratings
Paris, September 30, 2008 -- Moody's Investors Service has today announced that it has downgraded the
BFSRs of Fortis Group's main banking operations (Fortis Bank SA/NV's
bank financial strength rating (BFSR) to C- from C / Fortis Bank
Nederland to C- from C and Fortis Bank Luxembourg to C-
from B-) and in addition the long term debt and deposits ratings
to A1 from Aa3. Furthermore, all these ratings are placed
on review for possible downgrade. Ratings of subordinated and junior
subordinated debts issued by the different entities of the Group are detailed
at the end of this press release. Banking entities' 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 European insurance operations of the Group. Fortis N.V.
and Fortis SA/NV long term issuer ratings have been downgraded to Baa1
from A1 and have been placed on review for possible downgrade, and
the CP programme backed by Fortis SA/NV has been downgraded to P-2
from P-1. The insurance financial strength ratings of Fortis
Insurance Belgium, Fortis ASR Schadeverzekering N.V.
and Fortis ASR Levensverzekering N.V. have been downgraded
to A2 from A1, with a negative outlook. Moody's has
also placed the A3 insurance financial strength rating of Fortis Insurance
Company (Asia) Ltd (FICA) and the Baa1 backed senior unsecured debt rating
of Fortis Capital (Asia) Ltd on review for possible downgrade.
These ratings previously carried a positive outlook.
Yesterday, the governments of Belgium, Luxembourg and the
Netherlands announced a total capital injection of EUR 11.2 billion
in exchange for a stake of 49% respectively in Fortis Bank SA/NV
(EUR 4.2bn), Fortis Bank Luxembourg (EUR 2.5bn) and
Fortis Bank Nederland (Holding) (EUR 4.0bn). Fortis Bank
SA/NV, for its part, has committed to sell its stake in RFS
Holding, representing its share of the activities of ABN AMRO.
At the same time, Fortis announced additional EUR 3.7 billion
impairments on the Group's structured credit portfolio, the
majority of which is expected to be taken through the banks, along
with an associated EUR 1.2 billion write-down of US deferred
tax assets. Moody's rating actions announced today reflect
In Moody's opinion, the creditworthiness of the Fortis Group
and in particular the banks' capitalization have been negatively
impacted since the announced acquisition in October 2007 of part of ABN
AMRO for EUR 24bn. In addition to the already substantial cost
of the acquisition, further strain on the Group's capitalization
has been added through impairments linked to the Group's sizeable
exposures to structured credit exposure, as well as capital losses
associated with the imposed sale of some the Dutch activities acquired
from ABN AMRO, reflecting the EC competition requirements.
Reflecting these accumulated capital strains, the Group had announced
in June 2008 new measures aimed at restoring its solvency, including
asset sales and new capital raising, which have only been be partly
achieved due to the challenging market environment as well as a decreasing
level of confidence in the bank. Please refer to the press releases
issued by Moody's on the 27th of June 2008 and on the 1st of September
2008 for details on the associated rating actions.
Moody's said that, following the steps announced yesterday,
today's actions on the BFSRs of the main banking operations Fortis
Bank SA/NV, Fortis Bank Nederland (Holding) and Fortis Bank Luxembourg
reflect Moody's view of the banks' likely weakened franchise
positions in their respective markets, along with the as yet uncertain
implications for the banks' capitalization and profitability.
Moody's also mentioned that the BFSR of Fortis Bank Luxembourg is
now aligned with the BFSRs of Fortis Bank SA/NV and Fortis Bank Nederland
(Holding) reflecting the increasing integration of the three Benelux banking
entities as evidenced by the joint intervention of their respective government.
Moody's expects the banks' market positions and franchises
to come under considerable pressure in all markets due to the highly integrated
nature of the Group, notwithstanding the explicit support provided
from the various governments, due to the negative impact of the
significant changes in strategy and apparent need for substantial additional
capital and liquidity in recent months. In the Netherlands in particular
Moody's expects the banks' reputation in that market to suffer
as a result of the aborted ABN acquisition, whilst in Luxembourg
the state's intervention is highly likely to affect the competitive
position in private banking.
Moody's added that in terms of profitability, Moody's
notes that the banks' ability to maintain recent levels of profitability
would seem challenging, given the need for the banks to reorganize
themselves and absorb any franchise deterioration following the change
to their corporate structure, in addition to the stresses caused
by the current financial market turmoil.
In terms of capitalization, Moody's notes that the immediate
injection of equity will help to offset the EUR 3.7 billion impairments
on the Group's structured credit portfolio and EUR 1.2 billion
write-down of US deferred tax assets. Moody's notes
in addition however that the bank's core equity could be further
impacted should the sale of the Group's holdings in RFS Holdings,
currently on the Group's balance sheet with a value or EUR 24 billion,
take place at a price below EUR 12 billion, reducing the benefits
of the capital injection.
The review for possible downgrade for the BFSR and bank deposit/debt ratings
will therefore focus in particular on the conditions of the disposal of
Fortis' stake in RFS Holdings, as well as the ability of the
Group to manage its banking franchise in each market in a period of considerable
turmoil. Moody's will also monitor the ability of the banks
to maintain an adequate level of profitability.
Commenting on the ratings of the Belgian and Dutch insurance companies
of the Group, Moody's mentioned that the current credit events,
although limited to Fortis' banking operations, may have a
negative impact on the market position and profitability of the insurance
operations. In Belgium, where most of the products are sold
through the banking channel, any damage caused to the banking franchise
will have a direct effect on the ability of the insurance operations to
sustain its current level of activity, while in the Netherlands,
Fortis has very low control of its distribution, since Fortis ASR's
insurance products are mainly sold through brokers. Furthermore,
Moody's rating action on the European insurance operations reflects the
negative impact on Group capitalisation levels and the potential additional
requirement for calls on the earnings and capital of the insurance operations
In terms of debts issued by or guaranteed by the holding company,
Moody's said that the new ratings at the holding company level (senior
to Baa1 from A1, subordinated to Baa2 from A2, preferred to
Baa3 from A3) reflect the increased reliance on insurance operations as
well as the introduction of substantial minority interests (49%)
at the banking operation level. Moody's notes in particular
that the Group's overall financial leverage position is not expected
to decline markedly in the short-term, such that with reduced
retained earnings at holding company level overall fixed charge coverage
is expected to decline. Moody's added that the widening of
the notching between the operating entities and the holding company reflects
our expectation that systemic support would not benefit fully to the holding
company creditors. The review for downgrade of the holding company's
ratings will be concluded in conjunction with the review of the banking
The rating actions on Fortis Insurance Company (Asia) Ltd (FICA) and Fortis
Capital (Asia) Ltd reflect Moody's view that the level of the parental
support for FICA has weakened given the deterioration of capital strength
of Fortis Group. Moody's review for possible downgrade will
focus on the extent and quality of parental support available going forward,
and any improvements to FICA's stand-alone business and financial
profile -- especially in asset-liability management,
risk management and product development -- since its acquisition
by Fortis in 2007.
Headquartered in Brussels, Belgium and in Utrecht, the Netherlands,
Fortis Group has total assets of EUR 974.3 billion and reported
shareholders' equity (including minority interest) of EUR 30.4
billion as of June 30th 2008.
Vice President - Senior Analyst
Financial Institutions Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Reynold R. Leegerstee
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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