http://online.wsj.com/article/SB121446332017906607.html?mod=hps_us_at_glance_markets

Fortis Sets Plan to Raise $13 Billion

CEO Votron Points
To Weak Economy,
Defends ABN Deal

By CARRICK MOLLENKAMP and NEIL SHAH
June 27, 2008; Page C2

LONDON -- After offering a rosy outlook earlier this year, Dutch-Belgian bank Fortis NV said Thursday that it would need to raise €8.3 billion ($13.01 billion) in capital to shore up its shaky finances in a move that deals a blow to Chief Executive Jean-Paul Votron.

Fortis stock fell 19% in Amsterdam after the midsize bank unveiled a raft of measures to raise capital, including plans to issue €1.5 billion in new shares, cancel a €1.3 billion half-year dividend and sell assets.

In an interview, Mr. Votron attributed the change in tack to a worsening economy, saying investors need to be assured the bank's finances are strong enough to weather problems that could extend well into 2009. (See related article, Heard on the Street.)

Mr. Votron said he didn't expect to share the fate of other top European and U.S. bank executives, who have been forced to step down after posting billions of dollars in write-downs on bad investments and launching capital injections. "My job is safe, otherwise I wouldn't be here," said Mr. Votron, who has headed Fortis since 2004. "I have the full support of the board for what I am doing."

The news could raise questions about Mr. Votron's decision last year to take part in the largest bank deal ever -- the $100 billion acquisition of Dutch bank ABN Amro Holding NV by Fortis, Royal Bank of Scotland Group PLC and Banco Santander SA. Shortly after the three banks won a hotly contested battle for ABN with British bank Barclays PLC, the financial crisis took hold, precipitating heavy losses for banks around the world.

Mr. Votron maintains that Fortis's purchase of certain ABN assets was the right call, saying the bank's large network of retail branches in the Netherlands will prove valuable. Fortis also acquired ABN's asset-management and private-banking businesses. Fortis raised more than €13 billion through a discounted share issue to pay for its €24 billion share of the deal.

Fortis is the latest in a growing line of European banks -- including Barclays, RBS, UBS AG and Crédit Agricole SA -- that have decided to boost the capital cushions they maintain against losses. Globally, banks have raised about $300 billion in fresh capital to offset nearly $400 billion in write-downs.

Fortis could face challenges executing its capital-raising plans. Investors have become increasingly reluctant to take part in banks' fund-raising efforts, as financial shares have kept falling amid persistent write-downs and a worsening business environment. Fortis's money-raising plans include selling mortgage-backed securities at a time when there is limited investor demand.

Thursday, Fortis's share price fell €2.45 to €10.20. Before Thursday, Fortis shares had fallen more than 50% in the past year. Debt investors also showed concern: The cost of insuring against default on €10 million in Fortis debt for five years stood at €97,000 annually Thursday, compared with €70,000 a week ago.

In recent months, Fortis, while urging caution, had suggested to investors that it would be able to navigate a worsening economy. In mid-May, Fortis reported what it called "highly resilient results" for the first quarter-net income of €808 million, down 31% from the same period a year earlier -- and told investors that it had plans to maintain strong capital levels. In March, Mr. Votron called Fortis "a machine with a very well-oiled engine."

In April, Merrill Lynch & Co., which advised the consortium on the ABN purchase and now is advising on the new capital-raising plans, told clients that Fortis was a European bank stock that would rise in value. On Thursday, a Merrill Lynch spokeswoman said the firm was restricted from speaking about the bank.

Jaap Meijer, a bank analyst at Dresdner Kleinwort in London, called the capital-raising moves a "U-turn." Fortis said Wednesday its year-end 2008 dividend may be paid in shares instead of cash, and that it hopes to resume the cash payouts for the half-year period in 2009.

Mr. Meijer and other analysts said they don't expect Fortis to run into the type of funding crisis that toppled Bear Stearns Cos. But they do worry that Fortis will have to take more write-downs because of exposure to credit-related investments. Fortis has written down a total of about €2.3 billion for 2007 and the first quarter.

"It's very uncertain what's going to happen with their structured credit portfolio," said Ton Gietman, an analyst at Belgian brokerage Petercam in Amsterdam. "That's the big question mark everybody has."

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com and Neil Shah at neil.shah@dowjones.com