KBC Groep : Group: to liquidate Financial Holding Inc. (US)

KBC Press release
Outside trading hours - Regulated information*

Brussels, 16 November 2015

KBC to liquidate KBC Financial Holding Inc. (US)

When KBC agreed its strategic refocus with the European Commission in 2009 it undertook to run down or divest the activities of its subsidiary KBC Financial Holding Inc. (US) in order to reduce KBC's risk profile. That process has since been completed, with KBC collapsing the last two CDOs it held in portfolio in September 2014 (see press release of 1 October 2014). As a final step, KBC is now going to liquidate KBC Financial Holding Inc.  Belgian tax law provides that the loss in paid-up capital that KBC Bank sustains consequent on the liquidation of KBC Financial Holding Inc. is tax-deductible for the parent company at the moment of the liquidation, rather than at the time the losses were incurred (specifically 2008 and 2009). On balance, the post-tax impact on the result is estimated at 763 million euros. Initially, the recognition of the deferred tax asset will have only a limited positive impact in 2015 of approximately 0.16 percentage points (fully loaded CET1 ratio calculated under the Danish compromise method) on KBC's regulatory capital.

KBC Financial Holding Inc. is a wholly-owned subsidiary of KBC Bank NV and the holding company of the various US entities under which the financial products business lines of KBC were organised in the US. In the past, KBC Financial Holding Inc. was active in structured credit transactions, reverse mortgages, life insurance derivatives, fund derivatives, trade in US securities and certain treasury management services.

As a result of the global financial crisis, KBC Financial Holding Inc. incurred substantial losses that contributed to the KBC group having to call on aid from the Belgian Federal and Flemish Regional governments in 2008 and 2009. As part of the agreement with the European Commission drawn up to gain approval for the state aid received, the KBC group undertook to run down its financial products business lines. Based on that agreement, the group started selling or running down the activities and business lines of KBC Financial Holding Inc. in 2009 in accordance with the existing contractual obligations. Consequently, the current legal holding company structure has become superfluous, and KBC is going to dissolve and liquidate KBC Financial Holding Inc.

As a result of this liquidation (after selling all assets and paying any outstanding debt), KBC Bank NV, the sole shareholder, will get any cash resources remaining in the company.

Belgian tax law provides that the loss in paid-up capital that KBC Bank sustains consequent on the liquidation of KBC Financial Holding Inc. is tax-deductible for the parent company at the moment of the liquidation, rather than at the time the losses were incurred (specifically 2008 and 2009). To this end, KBC had to submit at the beginning of September an application to the Office for Advanced Tax Rulings of the Federal Public Service - Finance, which granted its approval.

On account of this tax loss and under the IFRS accounting standards, KBC Bank must recognise a gain in the form of a deferred tax asset in its income statement in the fourth quarter of 2015. The timing depends on when the competent American legal authorities take their decision. Further consequent on the liquidation, a foreign exchange loss on the capital of KBC Financial Holding Inc. also has to be recognised in the IFRS result. On balance, the post-tax impact on the result is 763 million euros, subject to USD/EUR rate at realisation. Initially, the recognition of the deferred tax asset will have only a limited positive impact in 2015 of approximately 0.16 percentage points (fully loaded CET1 ratio calculated under the Danish compromise method) on KBC's regulatory capital. In the years ahead, this will have a positive impact on the regulatory capital position, depending on the profit made by KBC Bank.

Lastly, KBC would point out that the activities of KBC Financial Holding Inc. and KBC Financial Products are completely separate from the commercial establishment of KBC Bank NV in New York, which will continue to exist to provide financial services to mainly business and corporate clients from KBC's core markets.

For more information, please contact:
Wim Allegaert, General Manager, Investor Relations, KBC Group
Tel. +32 2 429 50 51 - E-mail wim.allegaert@kbc.be:
mailto:wim.allegaert@kbc.be

Viviane Huybrecht, General Manager, Corporate Communication/KBC Group Spokesperson
Tel. +32 2 429 85 45 - E-mail pressofficekbc@kbc.be:
mailto:pressofficekbc@kbc.be

* This news item contains information that is subject to the transparency regulations for listed companies.

KBC press releases are available at www.kbc.com:
http://www.kbc.com/ or can be obtained by sending an e-mail to pressofficekbc@kbc.be:
mailto:pressofficekbc@kbc.be.

KBC Group NV   -  Havenlaan 2 - 1080 Brussels