Aegon Quarterly Profit Falls 60% on Equity Hedging Loss

Aegon NV, the Dutch owner of U.S. insurer Transamerica Corp., fell the most in five months in Amsterdam trading after raising its dividend less than analysts estimated and posting lower profit.

The stock tumbled as much as 6.6 percent, the biggest intraday decline since Sept. 19, and was down 6.4 percent to 6.33 euros by 12:17 p.m. The slide trimmed the gain over the past 12 months to 27 percent.

Aegon plans a dividend of 22 cents a share for 2013, below the 23 cent average estimate in a Bloomberg survey of analysts. It paid shareholders 21 cents in 2012. Fourth-quarter net income fell to 174 million euros ($239 million) from 431 million euros a year earlier, the Hague-based company said today.

“Market expectations had grown because of our excess capital position that had been building significantly across the group,” Chief Financial Officer Darryl Button said in a phone interview. “There was an expectation for a faster return of that cash back to shareholders in the form of a higher dividend announcement.”

Aegon is cutting costs and reviewing less profitable operations to reach targets set for next year after earnings growth was held back by low interest rates. The company also seeks to increase free cash flow -- money a company can spend on dividends, paying down debt or buying back shares -- to between 1.3 billion euros and 1.6 billion euros a year by 2015.

‘Cautious Tone’

“What we’ve been trying to remind everyone is that we intend to remain a cautious tone in terms of making sure we have excess capital buffers,” Button said. “So we thought at this point the prudent thing to do would be to hold the ground and have a modestly and sustainably growing dividend.”

Operational free cash flow excluding one-time items and the impact of markets was 304 million euros in the fourth quarter, Aegon said. That missed the 331 million-euro estimate of Maarten Altena, a London-based analyst at Mediobanca SpA, who has a neutral recommendation on the stock.

“Aegon reported a slightly disappointing set of results,” with underlying profit adjusted for one-time items missing estimates, Altena said. Annualized free cash flows are also below the company’s target, damping investors’ prospects for larger payouts, he said.

Aegon uses hedges to protect capital against declines in stocks and bonds, which have to be reported in the profit-and-loss account. A 9.9 percent gain in the S&P 500 Index during the fourth quarter, while benefiting investment income, contributed to a loss of 260 million euros on fair value items, which include hedges, credit derivatives and alternative investments.

Return on equity, a key measure of profitability, was 6.9 percent in the quarter compared with 7.4 percent a year earlier and 9.9 percent in the third quarter. In June, Aegon said it may achieve a return on equity of 8 percent to 10 percent by 2015, compared with a target of 10 percent to 12 percent, because of years of record-low interest rates.

Aegon plans to increase underlying earnings before tax by an annual average of 7 percent to 10 percent through 2015.

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