NIBC hit by US mortgage crisis

NIBC, the unlisted Dutch merchant bank backed by Chris Flowers, the former Goldman Sachs banker, on Thursday joined the ranks of European financial institutions damaged by US mortgage market mayhem when it disclosed substantial first-half losses.

The bank rushed out preliminary results, posting a €137m ($189m) first-half loss in its US asset-backed securities investment book that it said would reduce net profit to just €3m for the six-month period. That compared with €188m in the same period a year earlier.

The development put plans for an initial public offering on hold and triggered negative reactions from rating agencies.

Standard & Poor’s and Moody’s said they were considering cutting key credit ratings, noting NIBC “expected further mark-to-market losses” on its US ABS investment book.

The losses came in spite of efforts to limit the damage through portfolio hedges. This came after €29m in investment losses related to US asset-backed securities that resulted in a 58 per cent fall in net profit to €44m in the first quarter, Moody’s noted. NIBC said it was “disappointed” by the rating agencies’ reaction to what it considered “an isolated incident”. Michael Enthoven, NIBC executive board chairman, said: “We are convinced that NIBC has a sound strategy and business model, which will guide us through these challenging market conditions.”

It blamed “severe instability in the US credit fixed income markets and continuous credit spread widening”, but added that only part of its US ABS investment book was subprime-related, assessing exposure at €391m.

NIBC intended winding down its US ABS investment book over time, said Mr Enthoven, who added that all other activities were performing well. First-half profit after tax from continuing operations was €141m, and NIBC was maintaining a Tier-1 ratio of 10.6 per cent, facts the rating agencies acknowledged.

IPO plans had been shelved but not abandoned, NIBC told the Financial Times. It had hoped to re-start preparations for the float of up to 49.9 per cent of shares in Amsterdam in September, having pushed the listing back from March because of credit market volatility. The bank said it had not given up on listing, which it has been promising for more than two years, but was not able to say when such an event might take place. While an IPO would finance organic growth and acquisitions, NIBC said its strategy was not dependent on listing.

The bank was acquired from Dutch pension funds PGGM and ABP in August 2005 for €2.1bn by an investment consortium led by Mr Flowers’ private equity vehicle. The consortium includes ABN Amro, Spain's Banca Santander, Delta Lloyd, the insurance group, and Japan's Shinshei Bank.

It posted net profit of €288m and operating income of €516m in 2006. NIBC will release full first-half numbers on Wednesday.

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