Fortis Fourth-Quarter Profit Declines on Subprime Writedowns

Fortis Fourth-Quarter Profit Declines on Subprime Writedowns

March 7 (Bloomberg) -- Fortis, Belgium's biggest financial- services company, said fourth-quarter profit fell 45 percent on 1.5 billion euros ($2.31 billion) in writedowns on assets linked to U.S. subprime mortgages.

Net income declined to 414 million euros from 749 million euros a year earlier, Fortis, based in Brussels and the Dutch city of Utrecht, said today in a statement. Full-year profit was 3.99 billion euros. That missed the 4.06 billion-euro estimate of nine analysts surveyed by Bloomberg.

Fortis and the world's largest financial-services companies have posted more than $181 billion in writedowns and credit losses since the collapse of the U.S. subprime market. On Jan. 27, Fortis said it met its capital requirements following possible subprime- mortgage losses and wouldn't need to raise cash.

``The market focus has for some time been on what your exposure to risky assets is and what your capital position is,'' Joost de Graaf, who helps manage about $1 billion including Fortis shares at Kempen Capital Management in Amsterdam, said before the results. ``Fortis is among the financial-services companies in Europe that are closely scrutinized on these accounts.''

Fortis fell 33 percent in Brussels trading last year compared with a 16 percent drop in the 60-member Bloomberg Europe 500 Banks and Financial Services Index. Of 24 analysts tracked by Bloomberg who cover Fortis, 14 have ``buy'' ratings, 5 advise selling the stock and 5 rate it a ``hold.''

Lower Outlook

Fortis on March 5 had its rating outlook lowered to ``negative'' from ``stable'' by Moody's Investors Service over concerns that its capital was eroding.

``The negative outlook reflects Moody's expectation of a challenging recovery in the short to medium term of Fortis's underlying credit fundamentals in the context of an uncertain macroeconomic environment,'' analyst Jose Morago wrote. He also cited the ``major integration initiative'' of ABN Amro.

Fortis paid about 24 billion euros last year for ABN Amro's Dutch retail and commercial banks, its asset-management and private-banking units in a 72 billion-euro acquisition with Royal Bank of Scotland Group Plc and Spain's Banco Santander SA.

Fortis said in January it will meet its capital and solvency requirements ``even in very stringent scenarios on the impact of the subprime CDO portfolio.'' The announcement followed Fortis's drop Jan. 25 in Brussels trading to the lowest since August 2002.

Valuing Impairments

If Fortis applied its standard model for valuing impairments, the calculation would result in full-year profit of about 4 billion euros before divestments, the company said at the time. Profit would be 3 billion euros when using peer models, Fortis said. Seven analysts estimated profit on this basis of 3.22 billion euros.

Fortis's 2007 profit would be 1 billion euros higher if the sale last year of its stake in the CaiFor insurance joint venture with La Caixa, Spain's largest savings bank, were included in the calculation, Fortis said in January.

The company, formed in 1990 through the merger of the Dutch insurance company NV Amev, Belgian insurer AG Group and the Dutch bank VSB, said Feb. 28 that full-year profit at ABN Amro's businesses it acquired dropped 29 percent to 1.4 billion euros from 2006. Year-earlier results included a gain from selling Bouwfonds.

BLOOMBERG