DBRS Comments on Fortis Bank Nederland’s 2009 Results; Senior at A (high)
DBRS has today commented that the ratings for Fortis Bank (Nederland) N.V. (FBN or the Bank), including its Long-Term Debt & Deposits rating of A (high), are unaffected by the Bank’s announcement of full year 2009 results. FBN’s ratings remain at the floor, which DBRS has assigned for critically important banks operating in the Netherlands. FBN’s non-guaranteed long-term ratings remain Under Review with Positive Implications. The Bank’s Long-term Debt Guaranteed by the Dutch State remains rated AAA with a Stable trend.
For the year, FBN reported a net profit of EUR 406 million, which included two exceptional items: a cash settlement related to Fortis Capital Company Ltd. (FCC) which resulted in a capital gain of EUR 362.5 million (net of tax) and a EUR 16 million (net of tax) recovery related to the Madoff investment fraud. Excluding these items, the Bank reported a modest net operating profit of EUR 27 million compared to an operating profit of EUR 604 million in 2008. High funding costs and stiff competition for savings deposits pressured net interest income, which fell 27% as compared to 2008. DBRS views the basically break-even result, removing one-time items, as acceptable, given the operating environment and the significant restructuring efforts the Bank is undertaking.
Furthermore, the difficult economic environment, especially earlier in 2009, reduced the bottom line through higher impairments. Indeed, the total level of impairments increased from EUR 1.5 billion in 2008 to EUR 1.8 billion in 2009. At year-end 2009, impaired loans, increased to 1.93% of total on- and off-balance sheet exposures, up from 1.19% for 2008. Although impairments were higher across all businesses, DBRS still views impairments as manageable. Operating expenses were well controlled, declining 9% despite the costly process of separating from its former parent and preparing for the ABN AMRO integration.
Importantly, FBN’s results indicate that the franchise remains intact. Total client deposits (adjusted for those received from the Dutch State) increased EUR 5 billion, or about 10%, in 2009 whilst customer lending edged up slightly even with substantial repayments by corporate clients. The Bank opened offices in several financial centres and is applying to open offices in others. In August, FBN acquired Fortis Clearing Americas from its former parent, an important step in completing the Bank’s global Brokerage, Clearing & Custody network.
With respect to funding and capital, FBN was successful in re-establishing access to capital markets in 2009, launching several new funding programmes which helped the Bank refinance its loan facility from the Dutch State in the first half of 2009. Further illustrating the progress in improving funding, FBN issued EUR4 billion of senior unsecured bonds, with maturities of two and five years. DBRS recognises the progress but nonetheless expects continued strengthening of the funding profile. Capitalisation improved with the conversion of EUR 1.35 billion of Tier 2 instruments into common equity on 24 December 2009. FBN reported a Basel II Tier 1 ratio of a very much improved 12.5% at 31 December 2009.
The Bank continued to make progress in its separation efforts. At the end of 2009, FBN estimated that about 80% of projects related to the separation from Fortis Bank SA/NV were completed and that 75% of shared services had been discontinued. Full separation from Fortis Bank SA/NV is planned for 3Q10. FBN expects that in 2Q10, the Bank and ABN AMRO will become direct subsidiaries of the newly established (by the Dutch State) ABN AMRO Group N.V. The legal merger is expected later in 2H10.
The Under Review with Positive Implications continues to reflect DBRS’s view that the combination of FBN with the Dutch State-owned portions of ABN AMRO will create a formidable competitor in the Netherlands with top three market positions in most retail and SME banking products along with a sizable private bank.
Note:
All figures are in EUR unless otherwise noted.
The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.
This is a Corporate (Financial Institutions) rating.
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