Ending months of protracted negotiations, Fortis Holdings
shareholders have voted in favour of a transaction under which
French bancassurer BNP Paribas (BNPP) will acquire 75 percent of
Fortis Bank from the Belgian government. In addition, 25 percent of
Fortis Insurance Belgium (FIB) will be transferred to Fortis Bank
giving BNPP an effective 18.8 percent stake in the composite
insurer.
Positive votes at meetings held in Belgium and the Netherlands
followed a lengthy period of intransigence by shareholder groups
opposed to an agreement BNPP, Fortis and the Belgian government
signed in October 2008. Under that agreement, BNPP was to have
acquired 75 percent of Fortis Bank and 100 percent of FIB.
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The Belgian government acquired full control of Fortis Bank in
October 2008 for €9.4 billion ($12.5 billion) as part of a combined
effort by the governments of Belgium, the Netherlands and
Luxembourg to save Fortis from bankruptcy.
The Netherlands’ government set Fortis’ dismantling in motion with
its acquisition of its Dutch banking and insurance businesses for
€16.8 billion.
Under the terms of the deal between BNPP and Belgium’s government,
Fortis Bank is valued at €11 billion. As consideration for the 75
percent stake in the bank BNPP will as per the October 2008
agreement issue new shares at €69 per share to the Belgian
government which will become BNPP’s largest shareholder. BNPP’s
shares are currently trading at about €40 per share.
eurozone’s largest bank
According to BNPP its merger with Fortis Bank will create the
eurozone’s largest bank in terms of deposits which will total €540
billion.
For the purposes of the transfer of the 25 percent stake in FIB to
Fortis Bank, FIB is valued at €5.5 billion, as agreed in October
2008. The deal also includes an exclusive distribution agreement
between the bank and FIB which will run until 2020.
Fortis reported that in 2008 FIB’s gross life insurance premium
income declined by 22 percent compared with 2007 to €4.8 billion
while general insurance premium income was up 7 percent at €1.5
billion.
Hit by poor investment performance in 2008, FIB’s net profit
slumped to €6 million, from €1.638 billion in the first half of
2008 and €522 million in 2007. In 2008 life operations recorded a
€85 million net loss and general insurance operations a €91 million
net profit.
Despite lower life premium income in 2008 FIB remained Belgium’s
biggest life insurer. Fortis noted that funds under management in
the life insurance unit declined by only 1 percent in 2008 to €41.8
billion, a level that represented a market share of 28
percent.
Of FIB’s total life insurance premium income in 2008 €3.8 billion
comprised individual business and represented a 25.2 percent share
of this market segment. Group life business of €1 billion
represented a market share of almost 30 percent of this
segment.
With the drawn-out process of gaining shareholder approval behind
it and high risk assets valued at €11.4 billion consigned to a
segregated special purpose vehicle, Fortis is now positioned to
focus on rebuilding its image and profitability.
‘Priority now is to rebuild trust’
“Our priority now is to rebuild trust and confidence in the company
as quickly as possible based on performance,” stressed Fortis CEO
Karel De Boeck following the positive shareholder votes.
“We are wasting no time in defining a detailed strategy for the
future, and we do so knowing that the majority of shareholders are
behind us.”
Included in the strategy will be life and general insurance
businesses housed in Fortis Insurance International (FII), a unit
spanning 11 European and Asian countries.
Fortis reported that, in 2008, FII’s operations in which
consolidated stakes of 50 percent or more are held generated life
insurance premium income of €4.1 billion, up 4.9 percent compared
with 2007, and general insurance premium income of €1.23 billion, a
decrease of 9.7 percent.
In the life segment FII’s biggest unit, Portuguese life insurer
Millenniumbcp Fortis in which a 51 percent stake is held, produced
particularly strong results in 2008, increasing gross premium
income by 29 percent to €2.24 billion.
Fortis Insurance Company Asia (FICA), one of Hong Kong’s largest
life insurers, also produced solid results increasing premium
income 25 percent to €282 million. Fortis acquired FICA in June
2007 for €675 million.
Life premium income in Luxembourg, down 24 percent to €1.03
billion, and France, down 16 percent to €433 million, suffered as a
result of a focus on unit-linked sales and uncertainty surrounding
Fortis.
All joint ventures (JV) in which FII holds stakes of under 50
percent are in Asia and in 2008 generated life premium income of
€2.67 billion, up 12.2 percent compared with 2007, and general
insurance premium income of €337 million, up 11.2 percent.
FII’s JV’s include a 24.9 percent stake in Taiping Life, China’s
sixth largest life insurer, a 31 percent stake in Mayban Fortis,
Malaysia’s third largest life and general insurer, and a 40 percent
stake in Muang Thai-Fortis, Thailand’s sixth largest life
insurer.
FII’s most recent addition is IDBI Fortis Life Insurance, an Indian
joint venture in which Fortis has a 26 percent stake. Launched in
April 2008 the insurer focuses on the bancassurance channel
provided by 1,040 branches of Fortis’ partners, Industrial
Development Bank of India and Federal Bank.
But despite FII’s significant premium income its profit
contribution is insignificant, in 2007 generating a total net
profit of €40 million and in 2008 merely breaking even.
Investor reaction to the resolution of the Fortis Bank stalemate
has been muted with the insurer’s share price rising only
marginally in the first few days following the shareholder
meetings.
Undoubtedly, investors are keenly awaiting the unveiling of Fortis’
promised new strategic plan.
