August 9, 2011 9:38 am

KBC warns of further writedowns

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Exposure to Greek bonds dented profits at KBC, the Belgian financial group, in the second quarter, but strong underlying results prompted a shortlived rally in its shares amid a wider banking recovery.

The bancassurance group, in the midst of a restructuring after repeated bail-outs during the financial crisis, generated profits of €333m ($473.8bn) in the three months to end June, up from €149m a year ago.

Jan Vanhevel, group chief executive, described the first half of the year as “very satisfying”, pointing to sustained underlying results in its core businesses in Belgium and eastern Europe.

But the overall bright picture was dimmed by writedowns of €139m on €500m of Greek debt holdings, which pushed up asset impairments to €333m before tax, up from €105m last quarter.

Turmoil in European debt markets could lead to further writedowns in coming quarters, KBC warned, particularly in Ireland where it has large operations.

KBC holds €6.1bn in Italian sovereign bonds and €2.2bn in Spanish paper, which have tumbled in value in recent weeks due to fears over the health of the eurozone economy.

Management stressed the overall strength of the bank’s capital base. Its core tier one capital ratio – a measure of financial health – now stands at 12.1 per cent, up from 10.9 per cent at the end of the first quarter.

The group last month unveiled an overhaul of a restructuring plan it had agreed with European regulators to mitigate the distortions in competition caused by state intervention during the downturn.

It shelved a planned flotation of its CSOB Czech banking arm in favour of divesting two Polish units, Kredyt Bank and Warta.

The changes were approved by the European Commission, the European Union’s competition watchdog, which imposed the restructuring after KBC received €7bn in state aid from Belgian authorities during the crisis.

A spin-off of its KBL private banking arm, to India’s Hinduja Group, was blocked by regulators in March, with new bidders currently being lined up.

Earnings per share stood at 54 cents, up from nothing a year ago because of bail-out repayments. Net interest income dropped from €1.57bn to €1.41bn.

Shares in KBC rose by more than 6 per cent in early trading, reflecting a rally in banking shares after Monday’s turbulent trading. It subsequently lost the bulk of the gains, trading up 3 cents at €20.56 in volatile conditions.

KBC shares have nearly halved in value since their post-crisis high in October 2009.

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