Even as shares rallied last month, some banks reported severe problems. KBC’s write-downs of insurance from MBIA on a previously undisclosed €14.4 billion collateralized debt obligation portfolio hammered the Belgian bank’s results, turning a modest €465 million first-quarter operating profit into a €3.6 billion loss.
The bank joined legal action last month against MBIA following the US reinsurer’s transfer of valuable assets to a separate entity in February. KBC had to buy insurance from the state against potential losses on €20 billion of exposure.
Binary case
"Following the disclosure of the additional markdowns on CDOs and MBIA exposures, we think the KBC investment case becomes almost binary," say analysts at KBW.
If the economy holds up, KBC might trade its way through the problem and recover. If it collapses, shareholders might be wiped out in nationalization.
