Capital ratios brought back up to upper end of new market levels through the issue of 150 million in preference shares to institutional and private investors
- Van Lanschot issues 150 million in Tier I preference shares to institutional and private investors
- Preference shares carry an annual coupon of 7.5%
- Issue leads to a further strengthening of already strong solvency position
- New capital increases the bank's Tier I ratio to 10.1% and its BIS total capital ratio to 12.9%
- Van Lanschot aims for early implementation of FIRB approach under Basel II as from January 2010; this will have a substantial positive impact on the capital ratios
- Net profit for the first 10 months of 2008 amounts to 73.3 million
- Exceptional items to be recognised in the last 2 months of the year:
- Falling equity markets lead to losses on the sale of shares in the investment portfolio of approximately 50 million before tax
- An additional depreciation on the IT project as a result of IFRS of around 17.5 million before tax will be recognised in 2008
- Forecast net profit for 2008, including exceptional items, of around 30 million
Floris Deckers, CEO Van Lanschot NV: "Van Lanschot's capital ratios have always been at the upper end of the scale, reflecting its private banking activities. However, since the credit crisis has taken hold, the bank felt that it needed to further strengthen its already solid capital position. The issue of these preference shares allows us to bring our ratios back up to the upper end of the new market levels. Our strategy - which focuses on private banking and services to director-owners and family businesses - and the associated low risk profile of our activities are proving their worth in the current market turmoil. Although Van Lanschot is not directly hit by the credit crisis, the bank is not immune to the impact of the crisis on the financial markets. Despite this the bank has managed to keep its capital position and balance sheet intact and thus at sound levels."
Issue of preference shares
Van Lanschot plans to issue 150 million of preference shares to a select group of investors. This will lead to a pro forma Tier I capital ratio as at 31 October 2008 of 10.1% post transaction (9.0% pre-transaction) and a pro forma BIS total capital ratio of 12.9% (11.8% pre-transaction). The Core Tier I ratio will remain unchanged at 6.8%. Despite the current turmoil on the financial markets Van Lanschot's fundamentals remain solid and will be further strengthened by the capital increase.
Following the planned issue of preference shares, Van Lanschot's capital ratios will comply with the new market levels set by the recent capital raisings of several banks to improve their capital ratios in response to deteriorating market conditions. Van Lanschot aims to implement the FIRB approach under Basel II as from January 2010, which will have a further positive impact on all the capital ratios, including the Core Tier I ratio.
The issue of preference shares will take place through a private placement with institutional and private investors. There was extensive interest for these shares from both new and existing shareholders and the issue was substantially oversubscribed. The lead manager of the issue was Kempen & Co and the legal adviser Allen & Overy.
To effect the issue of preference shares, Van Lanschot's Articles of Association have to be amended. For this purpose, an Extraordinary General Meeting of Shareholders will be held on 17 December 2008. Payment and delivery of the preference shares will take place on 29 December 2008.
Details of the issue
Van Lanschot will issue 150 million of non-listed preference shares with an annual coupon of 7.5% to a select group of investors. Post transaction, the preference shares will represent approximately 9% of Van Lanschot's outstanding shares. The Dutch Central Bank (DNB) classifies the preference shares for regulatory purposes as Tier 1 capital. The preference share will rank equal to Van Lanschot's ordinary shares A and B (pari passu).
The preference shares carry a dividend payment of 11.25 million based on the annual coupon of 7.5%. This coupon is payable in cash and chargeable to the net profit and/or the distributable part of shareholders' equity. Holders of preference shares will only receive coupon payments if a dividend is paid on the ordinary shares and if the capital requirements as agreed with DNB are met. The integral dividend proposal is subject to the approval of the annual general meeting of shareholders of Van Lanschot. Coupon payments on the preference shares are paid at the time of the ordinary dividend payment.
As of March 2012, Van Lanschot is entitled to repurchase the preference shares during the two week period after publication of the annual or half-year results by Van Lanschot, subject to the approval of the DNB. A repurchase of the preference shares will be at 115% of the issue price in cash, increased with any dividends not yet paid out. 115% of any missed dividends will be compensated in the form of depositary receipts for ordinary shares A Van Lanschot.
As of March 2012, holders of preference shares are entitled to convert their preference shares into depositary receipts for ordinary shares A Van Lanschot during the two week period after publication of the annual or half-year results by Van Lanschot. The conversion is based on 115% of invested capital plus any dividends missed, and increased with any dividends not yet paid out. The conversion price will be the 60 day volume-weighted-average-share price. Instead of conversion into depositary receipts for ordinary shares A, Van Lanschot may opt for repurchase as described above, subject to DNB approval.
Structure & corporate governance
Van Lanschot will issue 1,379,311 preference shares A and 2,068,965 preference shares B at an issue price of 43.50 per preference share. The nominal value of each preference share amounts to 1.00. Post transaction the holders of the preference shares A will have 3.6% of the voting rights in the annual general meeting of Van Lanschot and the holders of the preference shares B will have 5.4%.
Financial performance for the first 10 months of 2008
In view of the planned issue of preference shares Van Lanschot is also publishing a brief update of the bank's operating performance in the first 10 months of 2008.
Client growth and funding
The inflow of new clients and funds entrusted has continued into the second half of the year. The number of private target group clients grew by 5.1% in the 10 months to October 2008. The funding ratio (the extent to which the bank's total loans and advances are financed by funds entrusted by clients) at 31 October 2008 was 92.7%. Van Lanschot's liquidity position is therefore one of the highest of all banks in the Netherlands.
Client assets (funds entrusted and assets under management) of private clients decreased on balance from 28.0 billion at year-end 2007 to 26.2 billion at 31 October 2008. Lower share prices were the reason for this decrease.
At the time of publication of the half-year results on 15 August 2008, Van Lanschot reported that current market circumstances were extremely difficult. Unfortunately, these conditions have not improved, with the credit crisis really taking hold since mid-September. As a result, the bank's securities commission has remained at the low level seen in the first half of the year.
The fierce battle for savings accounts among the banks has put pressure on margins. Higher volumes of customer deposits, but lower margins, means that the bank's interest income has remained relatively stable compared with the first half of the year.
Income from securities and associates is down compared with the first half of the year. A large portion of the dividend income from investments is traditionally received in the first six months of the year.
The profit on financial transactions is substantially lower than in the first half of 2008. This is due largely to unrealised negative results on economic hedges.
Operating expenses have remained more or less stable compared with the first six months of the year.
Thanks to its conservative lending policy, the quality of Van Lanschot's loan book is very high. However, due to the worsening economic conditions, the additions to loan loss provisions have increased compared with the low level in the first half of the year.
Net profit for the first 10 months of the year was 73.3 million (net profit for the first half of 2008: 60.3 million; net profit for the first 10 months of 2007: 144.5 million).
A number of exceptional items will be recognised in the last two months of the year:
- Van Lanschot's available-for-sale investment portfolio amounted to 920 million at 31 October 2008. This portfolio consists of government paper, other Triple and Double A-rated bonds, and equities (a breakdown of the investment portfolio is given in appendix 1 to this press release). As mentioned previously, Van Lanschot has no direct or indirect investments in the subprime sector, CDOs, SIVs and Alt-A RMBS or other complex financial instruments. As a consequence of market developments, the bank has to take a loss on the sale of the listed shares in this portfolio for an amount of approximately 50 million before tax.
- Following the bankruptcy of the Icelandic internet savings bank, Icesave, all Dutch banks, including Van Lanschot, are liable for a proportion of the amount to be reimbursed to savers under the savings guarantee scheme. Van Lanschot will form a provision for this in 2008 for an amount of 5 million.
- As indicated in the press release on the 2008 half-year results, Van Lanschot is in the process of analysing where improvements can be made in the programme to replace the core banking systems. The results of the analysis to date indicate that the majority of the modules will be implemented in 2009. However, under IFRS accounting rules an additional charge has to be taken in 2008 of approximately 17.5 million before tax as an impairment on the capitalised investments.
Outlook for 2008
The net profit of Van Lanschot for 2008 as a whole, taking into account the impact of the exceptional items, is expected to amount to around 30 million. A decision on the dividend for 2008 will be made by the Supervisory Board at its meeting in March 2009.
's-Hertogenbosch, the Netherlands, 1 December 2008
A conference call for analysts and investors (in English) will be held at 10.00am (CET). Call-in number +31 (0)20 531 58 21
A conference call for journalists (in Dutch) will be held at 11.00am (CET).
Call-in number +31 (0)20 531 58 70
Van Lanschot Media Relations: Etienne te Brake, Corporate Communication spokesperson
Van Lanschot Investor Relations: Geraldine Bakker-Grier, Investor Relations Manager
Van Lanschot NV is the holding company of F. van Lanschot Bankiers NV, the oldest independent bank in the Netherlands with a history dating back to 1737. Van Lanschot focuses on three target groups: high net-worth individuals, medium-sized businesses (including family businesses) and institutional investors. Van Lanschot stands for high-quality services founded on integrated advice, personal service and customised solutions. Van Lanschot NV is listed on the Euronext Amsterdam Stock Market.
Forward looking statements
This press release contains forward looking statements concerning future events. Those forward looking statements are based on the current information and assumptions of Van Lanschot management concerning known and unknown risks and uncertainties.
Forward looking statements do not relate to definite facts and are subject to risks and uncertainty. The actual results may differ considerably as a result of risks and uncertainties relating to Van Lanschot's expectations regarding such matters as the assessment of market risk or possible acquisitions, or business expansion and premium growth and investment income or cash flow predictions or, more generally, the economic climate and changes in the law and taxation.
Van Lanschot cautions that expectations are only valid on the specific dates, and accepts no responsibility for the revision or updating of any information following changes in policy, developments, expectations or the like.
The financial data included in this press release have not been audited.
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