Yesterday, in connection with its fourth quarter earnings announcement, KBC Groep NV, the second largest financial institution in Belgium, announced that it had reached an agreement with the Flemish regional government to receive a “core capital injection of 2.0 billion euros.” The government will also provide a separate ‘standby core capital facility’ which will permit the bank to draw up to an additional €1.5 billion if needed. The bail-out package is subject to confirmation from the Belgium financial sector regulator CBFA that the contributed capital will qualify as core capital, but the terms and conditions of the new capital injection “will be similar” to those of the €3.5 billion issuance of non-transferable, non-voting securities to the Belgian government that was announced in October and closed in December. The capital received from the government will in part permit KBC “to maintain its tier-1 ratio for the banking activities at approximately 10.5% (of which 8% core tier-1).
The bank reported a fourth quarter net loss, yielding a full-year loss of approximately €2.5 billion. During the fourth quarter, the bank wrote down “in full value” its mezzanine debt in the form of CDO notes, and adopted additional measures to “contain costs and reduce market risk.” Despite the difficult financial environment, the bank stated that its performance in its core markets, which include Central and Eastern Europe, “held up relatively well” in the past year. Group CEO Andre Bergen noted that the bank’s financial position would remain solid after receiving additional aid from the Belgium government.