Moody's Changes Outlook To Negative On Fortis

March 05, 2008, 10:31 p.m. EST 9 Min Read

The following is a press release from Moody's Investors Service:

London, 05 March 2008 -- Moody's Investors Service announced today that ithad affirmed all of the ratings of Fortis and has changed the rating outlook tonegative from stable on Fortis SA/NV, Fortis NV (both with issuer ratings atAa3), and all of their main operating subsidiaries (bank deposits at Aa2, BFSRat B-, and IFSR at Aa3). Please refer to the rating list below for furtherdetails. Commenting on the outlook change, Moody's noted the combination of the recent deterioration of the group's capital position and financialflexibility, as well as the potential for further capital markets-ledpressures. "The negative outlook reflects Moody's expectation of a challengingrecovery in the short to medium term of Fortis Group's underlying creditfundamentals, in the context of an uncertain macro-economic environment, amajor integration initiative for the group with the acquired ABN AMRObusinesses, and potential additional depreciation to certain of Fortis'pressurised assets" said Jose Morago, Moody's Assistant Vice-President/Analystand lead analyst for Fortis Group. In terms of the Group's financialflexibility, Moody's said that in its view this had deteriorated recently, inthe context of the hybrid raising initiatives to support the capitalisation ofthe banking operations as well as the funding of the ABN acquisition. As aresult, compared to historical levels, Fortis' financial leverage and fixedcharge coverage are likely to be over Moody's expectation for the rating levelsin the short to medium term. Moody's added that any further capital markets-induced pressures, for instance further writedowns of structured assets, wouldadd to these pressures. Furthermore, Moody's noted the significant increase ofthe group's hybrid usage, whereby hybrid capacity will be nearly exhausted inthe short-term. With reference to the Fortis Bank ratings, Moody's said thatin line with the stress tests that it is applying to financial institutionswith important CDO exposures, it had reviewed Fortis Bank's exposures to thisasset class. While Fortis' stressed marks are considered broadly adequate, therating agency said that in line with its analysis for financial institutions,it had taken a conservative view of the potential need for additional write-downs given the continued challenging market conditions. "The negative outlookreflects Moody's opinion of the prospect for additional impairments and reducedrecurring earnings given the important revenue contributions from the bank'smerchant banking activities. The negative outlook also reflects the weakenedcapitalisation of the bank both in terms of quality and absolute levels", saidLynn Exton, Senior Vice President and lead analyst for Fortis Bank . Moody's saidthat it views a Tier 1 ratio in line with the bank's target of 7%, excludingthe impact of the capital raised to finance the acquisition of ABN AMRO andcalculated on a Basel 1 basis, as an appropriate level for Fortis Bank toremain within its present rating category. If the Tier 1 ratio were to bebroadly below the target level of 7% level on a Basel 1 basis and net of theimpact from the ABN AMRO financing, for a prolonged period, the bank's ratingswould be under additional negative pressure. Regarding the Group's insuranceratings, Moody's noted that even though the underlying fundamentals of theinsurance operations have not changed materially in the last few months, theoutlook change reflects the potential for pressure on capitalisation levels andfinancial flexibility of the insurance ratings, in the context of the bank's/group's needs. It also reflects the level of integration of insurance with thebank/group, in terms of capital management, risks management and assetmanagement, and thus potential contagion risk. Regarding the ABN AMROacquisitions Moody's noted that despite the good strategic rationale of thetransaction, in the context of the challenges above, the integration of ABNAMRO operations represent an additional burden on the group's ratings in theshort to medium term. Moody's also affirmed and maintained a positive outlookon the A3 IFSR of FICA, the group's life insurance subsidiary headquartered in Hong Kong, considering that there are no material changes in the company'sfundamentals or the level of implicit support from the parent Fortis Group. Thepositive outlook continues to reflect our expectation that FICA's business andfinancial profile will improve over the medium-term due to changes made to itsoperations following its ownership and involvement of Fortis Group in Asia.Moody's added that the negative rating outlook on Fortis' main operatingentities could return to stable in the event of improvements to Fortis' riskprofile, capital position and financial flexibility in the next 12 to 18months. Specifically, strong operating results for 2008 consistent with limitedwrite downs on structured assets, a strong capital replenishment consistentwith a banking Tier I ratio of at least 7% and consolidated financial leverageno higher than the low 30s could result in an outlook change to stable. On theother hand, further deterioration in or a sustained weakness in capitalposition and financial flexibility could result in a rating downgrade in theshort-term. The last rating action on Fortis was in November 2007 when Moody'sassigned rating to Fortis' CASHES. Headquartered in Brussels, Belgium and in Utrecht, the Netherlands, Fortis Group had total assets of EUR 775.2 billion andreported shareholders' equity (including minority interest) of EUR 21.6 billionas of 31 December 2006. The following ratings were affirmed with a negativeoutlook: Fortis SA/NV, Issuer Rating, Aa3 Fortis NV , Issuer Rating, Aa3Fortis Finance NV, guaranteed senior debt, Aa3 Fortis Finance NV, guaranteedsubordinated debt, A1 Fortis Hybrid Financing, guaranteed preferred debt, A2Fortis Utrecht NV, guaranteed senior debt, Aa3 Fortis Utrecht NV, guaranteedsubordinated debt, A1 Fortis Floating Rate Capital Funding Trust, guaranteedpreferred debt, A2 Fortis Fixed Rate Quarterly Capital Funding Trust,guaranteed preferred debt, A2 Fortis Fixed Rate Annual Capital Funding Trust,guaranteed preferred debt, A2 Fortis Capital Funding LP, guaranteed preferreddebt, A2 Fortfinlux S.A., guaranteed equity linked securities, A2 Fortis BankNederland (Holding), long-term deposit and senior debt, Aa2, BFSR B- FortisBank SA/NV, long-term deposit and senior debt, Aa2, BFSR B- Fortis BanqueLuxembourg, long-term deposit and senior debt, Aa2, BFSR B GenfinanceLuxembourg S.A- Aa3 guaranteed subordinated debt rating Fortis LuxembourgFinance S.A.-Aa2 senior debt rating Fortis Bank ( Hong Kong)-Aa2 senior debtrating Fortis Bank , New York-Aa2 senior debt rating Fortis Bank , CaymanIslands-Aa2 senior debt rating Fortis Insurance Belgium, Insurance FinancialStrength Rating, Aa3 Fortis ASR Levensverzekering N.V., Insurance FinancialStrength Rating, Aa3 Fortis ASR Schadeverzekering NV, Insurance FinancialStrength Rating, Aa3 The following ratings were affirmed: Fortis Finance NV,guaranteed Prime-1 short-term debt and CP rating Fortis Bank Nederland (Holding),: short-term debt and deposit rating of Prime-1 Fortis Bank SA/NV:short-term debt and deposit rating of Prime-1 Fortis Banque Luxembourg: short-term debt and deposit rating of Prime-1 FB Funding Company: short-term debtrating of Prime-1 The following ratings were affirmed with a positive outlook:Fortis Insurance Company (Asia) Ltd, Insurance Financial Strength Rating, A3Fortis Capital (Asia) Ltd, backed senior unsecured debt rating, Baa1Copyright 2008, Moody's Investors Service, Inc. and/or its licensors andaffiliates including Moody's Assurance Company, Inc. 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