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KBC Shares Drop as Targets Disappoint Investors: Brussels Mover

KBC Groep NV, the best-performing banking stock in Europe this year, fell the most in almost three weeks in Brussels trading as investors had anticipated more aggressive targets in an overhaul of the bank’s organization.

KBC fell as much as 5.7 percent, ending five days of gains, and traded 1.09 euros lower at 19.59 euros by 12:27 p.m. local time. The shares have more than doubled since the start of the year, the best performance among the 38 companies in the Bloomberg Europe 500 Banks and Financial Services Index.

The bank plans to reduce operating expenses as a proportion of revenue to 55 percent by 2015, KBC, based in Brussels, said today in a statement. That compares with a cost-income ratio of 59 percent in the past four quarters, based on underlying figures. KBC also targets a combined ratio of 95 percent or lower in the insurance business.

“KBC for now isn’t providing investors with a profit goal or new cost-cutting plans and the targets they do give are no reason to change our earnings estimates,” said Cor Kluis, an analyst at Rabobank International in Utrecht. “Given the high expectations built in the KBC stock at the end of last week, we expect some underperformance today.”

Belgium’s biggest bank and insurer by market value, KBC has cut risk-weighted assets by 32 percent since the end of 2008 and has disposed of more than 20 entities since 2009. Chief Executive Officer Johan Thijs, who took over from Jan Vanhevel in May, is realigning the organization to the bank’s smaller size, built around its most profitable businesses in Belgium and the Czech Republic.

Banking Subsidiaries

A division called International Markets will include the banking subsidiaries in Hungary, Slovakia and Bulgaria as well as units still to be divested. KBC will also maintain its operations in Ireland, where its local bank, KBC Bank Ireland Plc, will be “managed to maximize its value contribution through its retail banking business.”

KBC agreed with the European Commission to reimburse 4.67 billion euros ($6.1 billion), net of penalty payments, of the 7 billion euros in state aid received by December 2013. KBC has until the end of this year to repay a remaining 3 billion euros of federal government funds before the penalty rate increases to 20 percent from 15 percent.

It reported a second-quarter loss of 539 million euros after a 1.2 billion-euro reduction in the carrying value of its stake in Nova Ljubljanska Banka d.d., ZAO Absolut Bank, KBC Bank Deutschland AG and Antwerp Diamond Bank NV, which are on the disposal list.

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