Fortis: The latest global bank in trouble

UPDATE 26 SEP 2008: I have a new story on Fortis and its troubles. Please click here.

The Times of London is reporting that Fortis, a Belgian-Dutch bank is issuing an ‘urgent’ cash call of €1.5 billion. Fortis has been hard hit by the global credit crunch, having written down billions in losses from the U.S. subprime meltdown.

In an “updated solvency plan” the bank said it aims to raise €8 billion overall. In addition to the €1.5 billion raised from the new shares, it intends to raise €1.5 billion from a sell off of its real estate assets on a “sale and lease-bank” arrangement, €2 billion from issuing “non-dilutive capital instruments” and €2 billion from the sale of it’s “mature, non-core” assets. 

“We believe that 2008 will be a difficult year for our industry and we do not expect an improvement in the economic environment soon,” Fortis Chief Executive Jean-Paul Votron said in a statement. “The measures announced today will help Fortis navigate through the current challenging market circumstances.”
–The Times of London, 26 Jun 2008

NRC Handelsblad, a Dutch newspaper said:

Since last autumn, when the credit crisis spread from the U.S. to Europe, Fortis has had to borrow billions from investors and other banks in order to pay for the 24 billion euros for purchasing part of ABN Amro. These loans have, as a result of the malaise in the financial markets, become increasingly expensive. Thus, the credit crisis has also affected Fortis. Regarding its own investments in bad U.S. mortgages, Fortis has already written down nearly 2 billion euros.
–NRC Handelsblad (My translation) 

The number of financial institutions needing capital keeps rising. I hope by now it’s apparent that this capital call is not restricted to one type of institution or one country. This is a global credit problem. Yet, the writedowns are mostly the result of a single sector of a single market in a single country: subprime residential housing in the United States. As other sectors become impacted, expect further calls for capital.

Fortis shares were down 13% in European trading.