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KBC Groep (EBR:KBC) Regulated information* - 6 November 2008 (7 a.m. CET)
KBC posted a net loss of 906 million euros (IFRS) for the quarter ending 30 September 2008. The loss was driven by value markdowns on structured credit and other investment portfolios. Adjusted for exceptional items and for structured credit and other value write-downs (see details in the quarterly report), the net profit would have come to 551 million euros. As at 30 September 2008, year-to-date reported profit stood at 141 million euros (2 094 million on an adjusted basis).
According to André Bergen, Group CEO: "Following the credit-rating downgrades of the Collateralised Debt Obligations held, KBC decided mid-October to communicate its preliminary third-quarter earnings earlier than planned. The definitive set of results presented today is fully in line with the information disclosed at that time. Despite the difficult operating environment, commercial performance was satisfactory, especially in Eastern Europe. The financial position of the group remains solid, and the more so after the capital-strengthening transaction that was announced last week."
Financial highlights - 3Q 2008
André Bergen, Group CEO, summarised the financial highlights for 3Q 2008, as follows: "The preliminary earnings disclosure of mid-October is fully confirmed. Despite the difficult climate, and taking into account the recurring seasonal revenue pattern, commercial results were satisfactory, especially in Eastern Europe. However, the reported results have been negatively affected by accounting markdowns on investment portfolios across business units." "The net profit impact of the investment markdowns due to the financial crisis was 1.4 billion euros: 1.1 billion on the CDO portfolio, 0.2 billion on shareholdings and 0.1 billion on exposure to troubled US banks Lehman Brothers and Washington Mutual. Part of the CDO markdown resulted from credit rating downgrades of 5 CDOs held. The markdowns also included the impact of extrapolating the rating downgrading to those CDO notes that were out of the scope of the credit rating agency review. By so doing, the future financial impact of potential effective downgrades of those CDOs has been anticipated." "While overall economic activity slowed, credit quality remained remarkably good. Loan losses were low again in Belgium, as was the case in our international loan book. Year-to-date, the credit cost ratio was 24 basis points. When including the losses on bonds of the troubled US banks, the ratio came to 37 basis points. Within the context of the deterioriating economic environment, it is expected that the loan loss trend will remain upwards for the next quarters." "Even after the consensus macroeconomic forecast for the region was revised, the Central and Eastern Europe business unit continues to perform well, mainly thanks to the relative weight of our presence in countries with more moderate vulnerability. Updated stress tests also provide comfort as regards our selective foreign-currency lending in the region." "KBC's financial position remains very solid thanks to its sound liquidity buffer and firm solvency ratios. When account is taken of the capital-strengthening transaction announced last week, the Tier-1 ratio for banking activities stands at 10.7%, of which 8.2% core capital. For the insurance division, the solvency margin is 280%."
Financial highlights - 9M 2008
Net profit according to IFRS for the nine months ending 30 September 2008 amounted to 141 million euros. This figure includes charges for items that do not occur during the normal course of business in the amount of -90 million euros, net, and losses on investment portfolios related to the financial crisis in the amount of 1 863 million, net.
Net interest income came to 3 723 million euros, up 24% on the year-earlier figure (+12% on an underlying basis), mainly thanks to solid volume growth achieved across all markets. The net interest margin in the Central & Eastern Europe and Russia Business Unit increased (partly thanks to growth in higher-margin countries), while it fell in Belgium due to the repricing of savings deposits during 3Q 2008.
Gross earned premiums, insurance, stood at 3 166 million euros, up 19% compared to the year-earlier figure. Net of technical charges and ceded reinsurance result, the income was 54 million higher (+15%). The combined ratio, non-life, remained at a remarkably favourable level of 92%.
Dividend income from equity holdings amounted to 195 million euros, somewhat lower than the year-earlier figure.
Net gains from financial instruments at fair value came to a negative 1 680 million euros. This amount included a valuation markdown of 2.1 billion euros on structured credit investments. The line item also includes income from professional money and securities trading, which was negatively impacted by the adverse capital-market climate.
Gains from available-for-sale assets were realised in the amount of 341 million euros (mostly on investments in shares), 199 million less than the year-earlier figure.
Net fee and commission income amounted to 1 336 million euros. This is 11% below the year-earlier level, largely due to lower customer investment activities consequent on the adverse investment climate.
Other net income stood at 435 million euros, 47 million above the year-earlier level.
Operating expenses came to 3 939 million euros. Compared to the year-earlier period, the 4% growth in costs is explained by new acquisitions and currency appreciations. Excluding these factors, the cost level was down 3%, largely on the back of lower bonus accruals due to lower trading revenue.
Impairment charges stood at 909 million euros, 300 million euros of which related to the loan portfolio. An impairment of 591 million euros was taken on available-for-sale investment securities, of which 415 million euros related to shares held mainly in the insurance business and 172 million euros related to (mostly) bonds of the troubled US banks Lehman Brothers and Washington Mutual.
The contribution from associated companies amounted to 33 million euros, while the share in the result attributable to minority interests was 83 million euros. Due to the negative pre-tax results, a deferred tax asset was recognised, resulting in a positive impact on the profit and loss account.
As at the end of September 2008, parent shareholders' equity came to 14.3 billion euros (42 euros per share). Shareholders' equity was down on the start of the year, as profit for the period (+0.1 billion euros) was more than offset by dividends paid out and treasury shares repurchased (-1.6 billion euros, combined) and by a decrease in the revaluation reserve for available-for-sales assets (-1.8 billion euros).
Future developments
André Bergen, Group CEO:"When the financial crisis first came to public notice in the summer of 2007, we could not have imagined that it would last so long and be so deep. Reported earnings will continue to be influenced by market price trends of shares and credit instruments. It is obvious that we remain vigilant, while we make sure that much of the management agenda continues to be directed towards business performance and enhancement of the mid-term value of our core business portfolio."
KBC has a credit exposure to 3 Icelandic banks in the amount of 277 million euros. No impairment decision has been taken yet since the level thereof could not be reliably determined. This decision will be taken later in the fourth quarter.
* This news item contains information that is subject to the transparency regulations for listed companies.
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