Fortis shares slump 20% on €8bn capital raising plan

Click to follow

Fortis has become the latest banking group to bolster its balance sheet in the wake of the credit crunch and its joint acquisition of ABN Amro, kicking off an €8bn (£6bn) capital raising plan yesterday.

Just a day after the announcement of a £4.5bn fund raising from Barclays, which lost out on the ABN deal to Fortis, Royal Bank of Scotland and Santander, the Belgo-Dutch group said it had prepared a series of measures to strengthen its capital base during "current exceptional circumstances".

The announcement sent shares in Fortis down almost 20 per cent to close at €10.20, valuing the bank at €22.4bn (£17.7bn).

One analyst said: "The shares fell because this is a very substantial issue, with what amounted to an earnings cut and some uncertainty around the dividend. The bank is in this position because it mistimed the acquisition of ABN and has been delayed in some of its disposals."

In what it called an "intention to accelerate its solvency plan", Fortis announced it had launched an equity raising of €1.5bn through an accelerated bookbuild. It is to place new shares with institutional investors, although it is yet to price the deal.

Merrill Lynch, the US bank that masterminded the consortium's bid for ABN Amro, has won the mandate to act as one of four book runners. The others are JPMorgan, Morgan Stanley and Fortis itself.

The group said it would not pay an interim dividend this year, a decision that will save €1.3bn. It added: "Current exceptional circumstances necessitate these exceptional measures." Fortis has also raised questions over its full-year dividend, saying it would consider the move depending on earnings, but any dividend would only be payable in shares.

As part of the capital raising plan announced yesterday, Fortis intends over the next 18 months to sell and lease back property to bring in €1.5bn and is to issue non-dilutive capital instruments worth €2bn.

Earlier this month, Fortis had looked to raise cash by selling half of its asset management division to China's Ping An Insurance, along with a 5 per cent stake in the overall group. It said yesterday that it had initiated a programme to sell off other non-core parts of the business to raise a further €2bn. The group was driven to raise capital after the sale of some commercial banking operations in the Netherlands was not as lucrative as expected, while it also has to fund buying the other half of its Dutch insurance joint venture with Delta Lloyd.

The group added that its capital requirements, under European law, will remain solid after the raising, reaching "well above 6 per cent" when the ABN Amro assets are fully integrated.

Jean-Paul Votron, the Fortis chief executive, said: "We believe 2008 will be a difficult year for our industry. The measures announced today will help Fortis navigate through the current challenging market circumstances."

Barclays names more investors in issue

Further details have emerged of how Barclays investors plan to participate in the £4.5bn capital raising launched to shore up the group's balance sheet and fund expansion opportunities.

The group released full details of the share-placing it announced on Wednesday, in a prospectus of 152 pages. In the document, Barclays revealed for the first time details of existing shareholders who had agreed to subscribe.

These include the UK hedge fund manager GLG – the group that earlier this week revealed it had a 7 per cent short position in Bradford & Bingley – which has subscribed to 62 million shares in Barclays.

It was joined by fellow hedge funds Lansdowne Partners, which has a short in Barclays' rival HBOS, and will take 27 million in the offer. London alternative manager CQS will also take 17 million. The traditional fund managers backing the move include AXA Investment Managers, Morley Fund Management and Scottish Widows Investment Partnership, which will take almost 60 million between them.

The Middle Eastern investor, Dubai-based Al Habtoor, will pick up 28 million shares, while the largest individual subscription was made by M1 Capital International Investments, a fund listed in British Virgin Islands, with 88 million shares.

Nick Clark