Fortis warns it could face €1 billion sub prime loss

28 January 2008 / by None
Fortis has had to admit that it could be facing a possible writedown of €1 billion (£743 million) due to its exposure to the sub prime mortgage crisis in America, which has had a rippling effect throughout the global economy.

The Belgian bank could stand to lose an additional €1 billion in profits as a result, seeing them fall to €3 billion from an estimated €4 billion. The news comes after much speculation about the bank's potential hit from sub prime losses.

The sub prime crisis has seen numerous casualties in the financial world which have suffered considerable losses, notably Northern Rock, which had a large stake in the American sub prime mortgage market, and faced the first run on a British bank in 140 years when American borrowers started defaulting on their loans and the market went sour.

According to experts, global banks might have to find an extra $143 billion to plug the hole left in the wake of the subsequent and ongoing credit crisis, as bond insurers, who insure the debts at the centre of the sub prime market, see cuts made to their credit ratings, which is likely to cause further losses for banks.

Shares in Fortis fell 10 per cent amongst its warnings of profit losses and exposure to the sub prime market, but the bank was quick to reassure its investors, saying that its capital and solvency positions are stable and secure.

The global market remains cautious after a week that kicked off with a massive 75 basis points rate cut by the US Federal Reserve amongst fears of a recession, and some believe the US will see another cut shortly. This week also saw the biggest trading scandal in banking history revealed after it was found that a junior trader at France's biggest bank, Société Générale, was secretly amassing a €4.9 billion loss in bad bets.

Ivan Lathouders, an analyst who covers the stock for Bank Degroof, told Reuters that the €1 billion loss "is not excessive", which is especially true when its loss is compared with other financial institutions which have suffered more significant losses.

© Fair Investment Company Ltd