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KBC says Q4 loss €2.6 bln, warns on E.Europe

  Belgian banking and insurance group KBC booked a €2.6 billion ($3.4 billion) Q4 loss due to writedowns and said on Thursday it saw a rising level of loan losses in Eastern Europe.  

Two analysts had expected a loss of €2.7 billion for the October-December period, after KBC said last month it expected a Q4 loss due to an expected €2.6 billion in writedowns. It confirmed the writedown figure.

KBC, which got €5.5 billion in capital injections from Belgian authorities in the past four months, said in a statement the loan-to-loss ratio in eastern Europe was 73 basis points in 2008, higher than the 50-60 basis points it expected last month. “So far in 2009, lending outside the home markets of Belgium and central and eastern Europe has continued to be restricted, while market risk is also being reduced by downsizing investment banking activities,” said KBC, which has been expanding in Eastern Europe.

Bank Degroof analyst Ivan Lathouders said: “Results are below expectations, even below their preliminary estimates from last month.” “This is due to a negative revaluation of its own debt resulting from a rating downgrade ... and credit losses in eastern Europe are higher than expected. I’m expecting a negative share reaction today rather than positive,” he said.

KBC said it was rolling out projects to cut costs and was “fine-tuning” the way it uses capital. In December, it said it would review operations outside its home markets, which are Belgium and central and eastern Europe, to cut costs and secure its solvency and long-term independence. The start of 2009 has been “encouraging” as KBC’s underlying business performance in January was better than the same month last year, chief executive Andre Bergen said.

KBC said it was “well positioned to weather the recessionary climate and ride out any further market turmoil” thanks to the capital injections from the Belgian and Flemish government in October and January. Fourth-quarter underlying net profit, which excludes most writedowns and some other items, fell 79% to €176 million, as all KBC’s business units posted lower results, especially its merchant banking unit.

The merchant banking unit, which provides loans and other services to bigger companies and corporate clients, posted an underlying loss of €42 million, partly due to rising commercial loan losses amid the economic slowdown. KBC shares have fallen 84% in the past year, underperforming a 62% fall of the DJ Stoxx European bank index. They trade at 4.2 times expected 2009 earnings per share compared to a 3.3 multiple for rival Dexia and 5.2 for ING. (Reuters)