FBD shows how to lose money despite economic revival

Usually, economic recovery helps companies. Not so FBD Holdings.

FBD will publish first-half earnings in Dublin on August 24th, with analysts waiting to see whether the increasing claims linked to accelerating economic activity it reported last year have persisted. The company may also lay out plans for a subordinated bond sale to calm investors spooked by reports that it needs capital.

"They're going to be under a lot of pressure and all the questions will be about capital," said Fiona Hayes, an analyst with Cantor Fitzgerald LP who cut her rating on FBD to hold from buy in March. "It's more and more bad news every time they present. I'm very puzzled by what's gone on there."

In March, Andrew Langford, who unexpectedly quit last month, told analysts that the uplift in the economy was putting more cars on the road, leading to more insurance claims and helping push FBD into an operating loss in 2014. Ireland's gross domestic product will grow 3.6 per cent this year, more than twice as fast as the euro region as a whole, according to the most recent European Commission forecasts.

FBD may need to raise up to €100 million to meet European rules that come into effect January 1st, known as Solvency II, the Irish Farmers Journal reported on Aug. 13 without saying where it obtained the information.

FBD could sell its 50 per cent stake in a joint property venture to raise €48.5 million, the Journal reported. The company may also seek to sell as much as €75 million of subordinated debt to ensure it meets new solvency rules, according to Darren McKinley, a Dublin-based analyst at Merrion Capital.

Full compliance

Pat Walsh, a spokesman for FBD, declined to comment. He pointed to a statement earlier this month that "plans are on course for FBD to continue to be in full compliance with all requirements by the due date."

FBD’s shares have dropped 39 per cent this year, valuing it at €241 million. “It appears as if they went too quickly into higher risks, for example the urban motor market, and it backfired,” Hayes at Cantor said. “There have been some unlucky developments in external factors like weather but there also seem to be internal issues, which make me more worried.”

Bloomberg