Fortis battles rumours of funding woes

Fortis, the financial-services company that set out in June to raise ¤8.3 billion (Bt411 billion) to bolster capital, fell in Brussels trading to a 13-year low yesterday on concerns it needs help with funding.

"The rumours about the Dutch regulator calling upon Rabobank Groep to support our liquidity are not true," Filip Dierckx, head of Fortis's banking unit, said in an interview. "This speculation pushing down the shares is unacceptable."

Chief executive officer Herman Verwilst said last Saturday the firm might sell more assets than anticipated as it becomes harder to raise money. It needs to replenish capital after paying ¤24.2 billion for part of Amsterdam-based ABN Amro Holding NV and writing down ¤682 million on structured investments this year.

Fortis, based in Amsterdam and Brussels, has about ¤3 billion of bonds maturing this year and needs to refinance an additional ¤7 billion next year, said Ivan Lathouders, an analyst at Banque Degroof SA in Brussels, in a report this week.

Fortis fell 6.3 per cent to ¤6.53 in Brussels, recovering from its biggest drop since 1990 earlier in the day. The shares have lost 64 per cent this year, valuing the bank at about ¤15.4 billion and making it the third-worst performer in the Bloomberg Europe Banks and Financial Service Index.

Investors in options increased bets that shares of Fortis would slide after De Telegraaf reported clients of the Belgian-Dutch bank's ABN Amro Holding NV unit may be withdrawing their money.

Implied volatility on three-month at-the-money contracts, which measure the price of options expiring in December, rallied to a record high of 121.6, an increase of 37 per cent since Thursday's close of 88.7, as investors bought insurance against a further drop in the lender's shares.

"Investors are very nervous about the company at the moment and there's a feeling it might be in trouble," said Xavier Martin, an options trader at Citigroup in London. "Implied volatility can easily go higher."

De Telegraaf reported yesterday that clients of Dutch unit ABN Amro might be moving to other banks. The newspaper cited Jan Peter Schmittman, head of ABN Amro Netherlands, as saying clients don't need to be concerned about Fortis's liquidity.

The most active Fortis options contracts were ¤5 puts expiring in December, according to Bloomberg data.

At a current price in the options market of ¤1, the contracts will be profitable to the buyer only if the shares decline to below ¤4, 39 per cent lower than Thursday's stock closing price in Amsterdam.

The decline is "linked to rumours that every Belgian citizen is frightened by Fortis," said Scander Bentchikou, a Paris-based analyst at Oddo Securities who has a "buy" on the stock. "Lots of people say they should diversify and fear a drop in the deposit base."

The company sees no signs that customers are withdrawing money, Fortis spokeswoman Liliane Tackaert in Brussels said yesterday. Rabobank, the biggest Dutch lender, hasn't been asked to support Fortis, Utrecht-based spokesman Raymond Salet said by phone.

"The Dutch central bank has nothing to add to the comments from Fortis and Rabobank," said Herman Lutke Schipholt, a spokesman for De Nederlandsche Bank in Amsterdam.

Fortis started offering Belgian customers opening online savings accounts 4 per cent interest on deposits up to ¤250,000 in July in a bid to keep clients from transferring money to rival banks. MoneYou, a unit of ABN Amro Holding, offers Dutch clients 5.1 per cent interest on deposits. That compares with notes yielding 8.25 per cent annually that Fortis sold on Feb. 21 to raise $750 million.

"Despite the increase in costs of savings accounts, this source of funding remains cheaper than wholesale funding," Lathouders wrote this week. "It is either impossible to find wholesale funding or it is priced prohibitively high."