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Belgium pumps 3.5 billion into KBC bank

Text by AFP

Latest update : 2008-10-27

After Fortis and Dexia, KBC became the latest Belgian bank to get its capital shored up by the state which pumped 3.5 billion euros into the banking group.

KBC became the latest Belgian bank to get its capital shored up by the Belgian state which pumped 3.5 billion euros (4.4 billion dollars) into the group on Monday after a share slump.

After riding to the rescue rival banks Fortis and Dexia earlier this month, Belgian Finance Minister Didier Reynders said that the move was a "preventive measure" rather than an emergency bailout.

KBC, a banking and insurance group with big operations in eastern Europe, also insisted that its capital base was strong while adding that jittery financial markets were demanding even more reserves.

"In this context, it is prudent to proactively strengthen our excess capital further in order to consolidate and reinforce our competitive position," KBC chief executive Andre Bergen said in a statement.

Under the deal, the Belgian state is to inject 3.5 billion euros into KBC in the form of special securities similar to ordinary shares but which the group said would not dilute existing shareholders' holdings.

KBC shares, which have lost 74 percent of their value since the start of the year, plunged over 13 percent at the start of trading in Brussels after the announcement.

By midday, the loss had been reduced to 7.13 percent with shares trading at 24.795 euros.

"Given the importance of solid capital buffers in the current exceptional circumstances on the financial markets, this transaction will enable the KBC group -- which already has a solid capital and liquidity position -- to further develop its activities," the CBFA financial regulator said in a statement.

"The intervention on the part of the government is also aimed at protecting economic activity in Belgium," it added.

KBC had been the only major bank in the country not to have turned to the state or foreign groups for help in the financial crisis after Fortis and Dexia ran into trouble.

The Belgian government has shelled out 19.7 billion euros in recent weeks bailing out Fortis, Dexia and insurer Ethias.

Although KBC has repeatedly stressed that its finances are solid, it has come under pressure to follow its rivals example in accepting a state bailout so as not to be left behind.

Analyst Ton Gietman at Belgian brokerage Petercam said that the group was recently not helped by the fact that it has extensive operations in eastern Europe, which has recently been hit hard by financial turbulence with Hungary requiring IMF aid.

However, he said that "the first, second and third reason why the company needs a capital injection is that everybody else is having a capital injection and the norms for capital have been raised in the past few weeks."

KBC said that it would not pay a dividend for 2008 on account of the "exceptional circumstances" and that the state would get two seats on its board, giving it a say in important decisions such as share issues, big acquisitions and executive remuneration.

Earlier this month KBC warned it would post a heavy loss for the third quarter because of a 1.6 billion euro writedown that it would book to account for losses related to the US subprime mortgage debacle.


Date created : 2008-10-27