KBC group said in a press release last week that it expected its full-year net earning to fall by 900 million ($1.2 billion). This is a result of further downgrades by Moodys Investors Service made on a range of CDOs held by the group.
KBC said in its statement that after having applied the new rating assumptions to the entire CDO portfolio, including securities that were not downgraded, and while maintaining the policy of bringing the value of all securities with a credit rating below 'Ba3' to zero, the adverse impact on value for KBC came to 600 million.
Another 300 million CDO mark-down was linked to the increased market value of financial guarantees (written by monoline insurers) on the back of the rating downgrades. This brings the combined pre-tax impact to 900 million.
Since the start of the financial market crisis, KBC has opted to be highly transparent about the sensitivity of its earnings to changes in the value of investments.
The most recent credit rating review follows series of reviews earlier this quarter, the adverse financial impact of which had already been anticipated in the third quarter.
KBC received a 3.5 billion capital injection from the Belgian government at the end of last year the group said it will publish its fourth-quarter results on Feb. 12.