June 26 (Bloomberg) -- Fortis, part of the group that bought ABN Amro Holding NV last year in the biggest banking takeover, scrapped a 1.3 billion-euro ($2 billion) cash dividend and will sell shares and assets as the earnings outlook deteriorates.

Fortis dropped as much as 19 percent today in Brussels trading, the most since the company was formed in a merger 18 years ago. The bank said it will raise 8 billion euros of new capital by selling stock and ``non-core'' assets such as real estate, and won't pay the interim dividend for the first time in four years.

Chief Executive Officer Jean-Paul Votron told reporters he needs ``exceptional measures'' because the business environment won't improve anytime soon. Fortis, Belgium's biggest financial services company, lost more than half its market value since it agreed to spend 24 billion euros to buy part of Amsterdam-based ABN Amro just as the subprime mortgage market collapsed.

``This will raise further questions about management's judgment,'' said Piers Hillier, head of European equities at WestLB Mellon Asset Management in London, who helps oversee about $6 billion including Fortis stock. ``While the dividend cut stabilizes the capital base, it raises questions about the quality of the ABN Amro assets they bought.''

Fortis fell 2.39 euros to 10.26 euros in Brussels, valuing the bank at 22.6 billion euros. The stock, which lost 5.3 billion euros of market capital today, has fallen 43 percent this year, underperforming the 59-member Bloomberg Europe Banks and Financial Services Index, which fell 31 percent.

`Negative Implications'

Standard & Poor's put Fortis's debt rating on ``credit watch with negative implications.'' It cited the bank's ``increasing reliance on weaker forms of capital.''

Fortis plans to sell 2 billion euros of bonds and 2 billion euros of assets to raise about half of its new capital. It also expects to gain 1.5 billion euros from the sale of new stock and 1.5 billion euros from selling and leasing back real estate.

Fortis raised 13.4 billion euros last October in a rights offering to help pay for the asset-management and Dutch consumer banking units of ABN Amro. Fortis, which wrote down 6.6 billion euros of assets this year, said its so-called core Tier 1 capital ratio, a measure of financial strength, will exceed 6 percent by the end of 2009.

Fortis, forced under Europe's antitrust rules to divest some of the commercial units acquired from ABN Amro, said it will sell them for 300 million euros less than their net asset value. Fortis also will have to set aside capital to cover credit risk on 10 billion euros of the unit's assets, it said.

`Massive Climbdown'

``This is a massive climbdown for management,'' said Simon Maughan, a London-based analyst at MF Global Securities Ltd. ``They massively overpaid for ABN Amro and they will be paying for it for years to come.''

Fortis has made ``gigantic progress'' on integrating ABN Amro, said Votron, 57, who called ABN Amro an ``excellent acquisition.''

The company agreed in March to sell half of its asset- management unit to Ping An Insurance (Group) Co., China's second- biggest insurer, for 2.15 billion euros to help restore its finances. Ping An said today it will buy 5 percent of shares and assets sold by Fortis.

``Our purchase will proceed according to the timing of Fortis's sale,'' spokesman Sheng Ruisheng said in an interview.

More capital will help Fortis ``navigate through the current challenging market circumstances,'' the company said. ``Equity market volatility'' reduced the bank's capital reserves by 400 million euros, and a first-quarter gain on credit-market hedging won't be repeated in the second quarter, it said.

Fortis plans to pay its full-year dividend in stock and will probably resume cash payouts next year.

Worldwide Writedowns

Banks and securities firms have raised $314 billion in the past year after record writedowns and credit losses of almost $400 billion from the collapse of the subprime mortgage market.

Concerns about Fortis and New York-based Citigroup Inc. weighed on European bank stocks today, with the Bloomberg Banks index falling 4.4 percent, the most in three months. Paris and Brussels-based Dexia, the world's biggest lender to local governments, fell as much as 10 percent, while Barclays Plc fell as much as 5.8 percent.

Citigroup may take an additional $8.9 billion in net writedowns in the second quarter, probably won't be able to keep its current 7 percent dividend yield and may need to raise more capital, Goldman Sachs Group Inc said in a note yesterday.

Job Cuts

Edinburgh-based Royal Bank of Scotland Group Plc, leader of the group that acquired ABN Amro for a total of 72 billion euros, raised 12.3 billion pounds ($24 billion) this month to replenish capital. It plans to write down 5.9 billion pounds of credit- related assets this year, a third of them acquired from ABN Amro.

UniCredit SpA, Italy's biggest bank, said today it will cut 9,000 jobs, or 5 percent of its workforce, after making $61 billion of acquisitions during the past three years. Milan-based UniCredit is struggling to increase earnings after trading losses and credit-market writedowns caused a 51 percent drop in first- quarter profit.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net; Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net

Last Updated: June 26, 2008 13:20 EDT