Fortis Q4 profit halves on subprime, hints at deal

BRUSSELS (Reuters) - Dutch-Belgian financial group Fortis (FOR.BR) said its profit halved in the fourth quarter after a 1.5 billion euro ($2.3 billion) subprime writedown, and hinted on Friday at a big deal that lifted its shares.

Net profit, which also included gains from Fortis's (FOR.AS) 2007 acquisition of ABN AMRO's Dutch business and divestment of a joint venture, fell by a worse-than-expected 48 percent to 414 million euros from a year earlier, below the 538 million euros projected, on average, by analysts polled by Reuters.

Fortis said it was in talks on a deal that would boost its solvency, but Fortis Chief Executive Jean-Paul Votron gave no further details. "We have been engaged in exclusive negotiations on another transaction that will further strengthen our solvency substantially," he said.

Including 2 billion euros from the yet-to-be-announced deal and other steps to shore up capital, Fortis said it would be able to boost its solvency by 3.2 billion euros.

The market seized on the news of a deal and pushed Fortis shares higher, said one Amsterdam trader, reversing a near 5 percent decline. Belgian financial markets regulator CBFA had no immediate comment on the move.

Another trader said there was relief that Fortis had confirmed its subprime impact.

Fortis shares, which fell 34 percent in 2007 as it pursued ABN AMRO and during the subprime crisis, stood at 14.79 euros at 1322 GMT, up 3.5 percent. The DJ Stoxx European banking index .SX7P was off 0.4 percent.

Fortis is the latest among the world's biggest financial groups to report a loss from exposure to subprime-related debt, which has caused UBS (UBSN.VX) and Credit Suisse (CSGN.VX) in Europe to take billions of euros in writedowns.

Fortis said its portfolio of subprime collateralized debt obligations (CDOs) now stands at 2.9 billion euros.

Petercam analyst Ton Gietman said the disclosure of the impact of subprime investments was too little, too late, calling it "shamefully high".

Still Fortis, along with Benelux peers ING (ING.AS) and Rabobank RABN.UL, escaped the worst of the credit crisis, in which investments in subprime mortgages to risky U.S. borrowers turned sour, triggering a global liquidity crunch and forcing financial groups to provide for double-digit billions in losses.

Votron said markets would "remain challenging for the foreseeable future," adding the group could weather any turmoil and was taking steps to curtail investment activities in CDOs.

Earlier this week, Moody's Investor Service put the bank's Aa3 rating on negative watch, warning that its capital adequacy ratio could be hurt by further funding to pay for ABN -- estimated at 4 billion euros -- as well as its risky CDOs.

"A risk of capital shortfall remains from further writedowns on CDOs and credit spread investments," ING analyst Albert Ploegh said in note.

MOVING PARTS

Fortis also reported a gain of 947 million euros on the sale of its CaiFor joint venture with Spain's La Caixa.

ABN's contribution to Fortis's results was 179 million euros for the period since its takeover in mid-October. For the full year, profit at the Dutch activities of ABN that Fortis is acquiring rose 17 percent to 1.355 billion euros.

Fortis was party to the largest-ever banking takeover last year, joining up with Royal Bank of Scotland (RBS.L) and Santander (SAN.MC) to buy ABN AMRO for 70 billion euros.

Fortis said its core Tier 1 capital ratio at the end of 2007 was 8.6 percent, but would drop to 5.4 percent over the next two years, including the moves to boost capital, as it takes various integration charges for merging with ABN's Dutch operations.

Votron told reporters on a conference call that the ratio would remain strong in 2008, saying, "We will remain close to or above capital ratio requirements."

For the full year, Fortis net profit dropped 8 percent to 3.99 billion euros from 4.35 billion euros a year earlier, including the charges on its exposure to subprime-related debt.

Excluding the CaiFor gain, Fortis had a profit of 3 billion euros, below the 4.16 billion euros average forecast in a Reuters survey of eight analysts.

(Writing by Philip Blenkinsop; Editing by Quentin Bryar)