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Ageas Reduces Earnings Swings Assuming More Payments to BNP

Ageas, the majority owner of Belgium’s biggest life insurer, expects to pay additional compensation to BNP Paribas SA assuming the French bank will be successful in buying more of Fortis Bank SA/NV’s hybrid bonds.

Ageas, based in Brussels and Utrecht, will pay 287 million euros ($377 million) to BNP Paribas after the Paris-based bank acquired almost 63 percent of the floating-rate, undated convertible notes sold by Fortis Bank in 2007, according to a statement today. BNP Paribas spent 896.9 million euros buying the notes for 47.5 percent of face value and exchanged those for Ageas shares valued at 131.3 million euros based on yesterday’s closing price.

The discounted buyback of the so-called CASHES was part of a settlement aimed at resolving some of Ageas’s remaining liabilities from its Fortis legacy. The insurer said today that it will assign a minimum value of 169 million euros to the liability arising from the remaining Fortis Bank notes. That corresponds to the compensation payment that is due should BNP Paribas be able to win over all the remaining bondholders for its discounted offer.

“It basically means Ageas has the intention to further indemnify BNP so the liability is likely to further decrease over time,” Benoit Petrarque, an analyst at Kepler Capital Markets, wrote in an investor note today. “Condition is of course that BNP will succeed in buying back more CASHES at 47.5 percent.”

Quarterly Interest

Ageas, which was created out of the insurance remains of Fortis, pays quarterly interest to Fortis Bank to compensate its former banking unit for the relative decline in the value of Ageas shares underlying the convertible notes. Fortis Bank is now controlled by BNP Paribas, which bought a 75 percent stake from the Belgian state in May 2009.

Assigning a minimal valuation to the liability will make Ageas’s earnings less volatile as swings in the value of the shares or the convertible notes were so far reflected in the insurer’s quarterly accounts. Quarterly interest payments will be proportionally lower in case the liability is valued at less than 169 million euros, according to today’s statement.

The insurer declined 1 cent to 1.65 euros at 1:28 p.m. on Euronext Brussels, valuing the company at about 4.33 billion euros. The shares have gained 14 percent since the announcement of the settlement with BNP Paribas was made on Jan. 26.

Stock Buybacks

Ageas said its cash holdings, less of debt, will increase by 666 million euros as of March 26 because the settlement also involved a 1 billion-euro reimbursement by Fortis Bank of perpetual subordinated notes it sold in 2001, most of which are held by Ageas since Sept. 26.

The insurer may use the additional cash to resume stock buybacks following approval by shareholders at the annual meetings at the end of April, Petrarque said.

Ageas spent 250 million euros buying back almost 7.33 percent of its outstanding stock in the five months through Jan. 25 and plans to cancel those shares, offsetting the dilution of per-share earnings following BNP Paribas’s exchange of the Fortis Bank notes for about 78.9 million Ageas shares.

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