Sunday, January 27, 2008

Fortis could face €1bn subprime hit

(Reuters) Fortis, the Belgo-Dutch bank, said Sunday its 2007 net profits before divestments could be lowered from €4bn ($5.9bn) to €3bn due to its subprime exposure, depending on which market scenarios apply, reports Reuters in Brussels.

“If these scenarios were to be applied to the closing of the accounts of 2007 – which would be subject to approval by the board on March 6 – the net profit of Fortis is to be around €3bn,” it said in a statement.

The bank was under pressure to communicate on its subprime exposure after a newspaper report on Saturday said it would need to write off up to €2bn in its subprime portfolio.

Also, shares in Fortis fell more than 10 per cent on Friday on market talk of profit warnings and possible exposure to US subprime mortgages, traders said.

A source briefed on the situation told Reuters on Friday there would be higher-than-announced write-offs due to Fortis’s subprime exposure but declined to give precise figures.

Fortis sought to reassure investors in its statement Sunday and said its capital and solvency positions were sound and it planned to maintain its dividend at last year’s level. The bank also said it was not considering issuing new shares.

Financial markets remain nervous after a week that started with plummeting stocks on fears of a US recession and saw both a massive rate cut of 75 basis points by the US Federal Reserve and the biggest trading scandal in banking history after a junior trader at France’s Société Générale was accused of secretly amassing a €4.9bn loss in bad bets.

A banking source said Fortis had held a board meeting on Friday, which the bank declined to confirm.

Fortis, which is buying rival ABN Amro’s Dutch operations, saw its third-quarter net profit fall 10 per cent in November and warned then of subprime-related losses.

At the time, Gilbert Mittler, Fortis chief financial officer, said the bank might take a €120m net charge in the fourth quarter on subprime investments if current conditions continued.

Asked whether Fortis would reach its average annual earnings per share growth target of 12 per cent in 2007, he said the target was an annual average for the period 2007 through to 2011.

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