THE BELGIAN government was again called to prop up its banking sector yesterday, offering state guarantees to KBC to contain the risk of toxic assets on the bank’s balance sheet toppling the group.
The bailout, which comes on top of previous government assistance for KBC as well as Fortis and Dexia, the rival Belgian lenders, underscores the damage some banks are still suffering.
It comes after KBC reported a first-quarter loss of €3.6 billion ($4.9 billion), driven by further writedowns on its portfolio of collateralised debt obligations.
The writedowns included an €11 million impairment on shares KBC holds in Irish Life Permanent (ILP), bringing the totality of impairments on that investment in the past year to €78 million. ILP shares are down more than 77 per cent in 12 months.
KBC said the rate of loan losses on its Irish book declined in the first quarter from the level seen in the final quarter of 2008, a year in which the pretax profit of its Irish unit dropped to €114.67 million from €153.51 million.
However, KBC said its Irish unit ranked among “particular areas of attention” when stating that worldwide non-performing loan trends were expected to remain upwards for as long as the economic cycle has not bottomed out.
Although international markets had been expected some class of a big write-down by KBC, the overall figure was larger than forecast after the downgrade of MBIA, the monoline insurer that has guaranteed KBC’s exposures.
Several other European banks – including Barclays, Deutsche Bank and Royal Bank of Scotland – have exposures to investments insured with monoline insurers.
On Wednesday, a group of large US and European banks, including Citigroup, Bank of America and JPMorgan Chase, sued MBIA, arguing that its decision to split into two undermined its ability to pay policyholders.
Shares in KBC, which had rallied with the rest of the European banking sector in recent weeks amid hopes the worst of the credit crisis had passed, lost 23 per cent of their value yesterday after the bank revealed details of its third rescue plan in eight months.
KBC will pay the government €1.15 billion for a range of guarantees, partly covering it against further losses on its portfolio of CDOs. The agreement limits KBC’s liabilities beyond an initial €3.2 billion of further losses, and cover a total of €20 billion in troubled assets.
The payments are to be staggered over six years, and a decision could be made to effectively shelve the deal – both the payments and the guarantees – if markets recover in the meantime, according to sources.
KBC has picked up €5.5 billion in government aid since the start of the crisis. Fortis and Dexia have also repeatedly relied on state money. – (Copyright The Financial TimesLimited 2009)
