Fortis First-Half 2009 Profit Skyrockets on Transactions

Belgian insurer Fortis has reported a group net profit after minority interests of 886 million euros (780.6 million pounds) for the first half of 2009, showing a marked recovery from the same period of 2008, when it made a profit of just 25 million euros.

This was driven by a number of events related to the closing of the transactions with BNP Paribas, the Belgian State and Fortis Bank, as well as a net-of-tax charge of 301 million euros related to the legal dispute with Fortis Capital Co. Ltd., the company said.

The company, which has seen a substantial amount of turmoil and restructuring over the past year, made an insurance net profit of 228 million euros, down 29% on the 319 million euros it posted for the first half of 2008. Its net profit attributable to shareholders came to 886 million euros -- down 46% on the 1.64 billion euros it recorded for the same period of 2008, which included a profit on discontinued operations of 1.6 billion euros, related to the banking operations and the Dutch insurance activities sold in the second half of 2008.

Fortis' life insurance operations contributed 184 million euros, down on the 214 million euros from the same period of the previous year. Nonlife insurance contributed 44 million euros, down on the 105 million euros from the first half of 2008.

"We expect the market environment to remain challenging with an economic situation impacting customer behavior across life and nonlife businesses," said chief executive officer Bart De Smet, in a statement. "As in the past, we remain vigilant and disciplined towards our business performance. As previously announced, we are currently conducting a strategic review, focusing on our insurance activities and the balance sheet structure, the conclusions of which will be communicated on 25 September."

The past year has seen a great deal of change for the company. In mid-2008, it was a financial services company with both banking and insurance elements. However, in September 2008, following substantial fluctuations in its share price the governments of Belgium, Holland and Luxembourg stepped in to effectively bail the company out. A week later, the Dutch government announced that it was acquiring Fortis Bank Nederland (Holding) N.V., including Fortis's interest in ABN Amro Holding N.V., and its Dutch insurance activities for a total of 16.8 billion euros. As originally announced, BNP Paribas was to buy up the Belgian and Luxembourg holdings of Fortis, as well as its international banking franchises.

This plan rapidly bogged down following a series of legal challenges and shareholder rebellions, with one general meeting being disrupted twice when angry shareholders came close to rioting. Eventually, BNP was allowed to purchase a majority stake in Fortis Bank and 25% of the shares in Fortis Insurance Belgium via Fortis Bank for 1.37 billion euros (BestWire, April 28, 2009).

In June, Fortis was ordered by a Dutch court to pay 362 million euros in compensation in an investment compensation dispute with two former subsidiaries, Fortis Capital Co. Ltd. and Fortis Bank Nederland Holding (BestWire, June 29, 2009). In 1999, Fortis Capital, a wholly owned subsidiary of Fortis Bank Nederland, issued 450,000 preference shares with a total nominal value of 450 million euros in order to strengthen the capital structure of Fortis Bank Nederland Holding. The net proceeds of this issue were made available by Fortis Capital to Fortis Bank Nederland in the form of a subordinated loan. According to terms of the issue, the holding company has to compensate those investors who after 10 years opted to convert their preference shares to cash in the event that Fortis Bank Nederland was unable to do so. Due to the separation of Fortis from Fortis Bank Nederland and therefore Fortis Capital, Fortis had claimed it was not responsible for the payout. The court ruled otherwise.

The Fortis that emerged from 2008 is a stripped-down entity that currently consists of 75% of AG Insurance, which was formerly Fortis Insurance Belgium, Fortis Insurance International, and the company's general segment. The other 25% of AG Insurance was sold to Fortis Bank.

De Smet is the fifth person to hold the position of CEO over the past year, with previous incumbents being badly buffeted by the turbulence that had surrounded the company.

Fortis has also unveiled what it described as its "new streamlined management structure." A new executive committee has been created, composed of De Smet, deputy CEO Bruno Colmant and new chief risk officer Kurt De Schepper, who starts at his new position on Sept. 1.