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Rating Action:

Moody's downgrades Fortis' ratings

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 these events.

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 entities' ratings.

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.

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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