Dutch insurer Aegon tapped into government funding on Tuesday, taking 3 billion euros ($3.7 billion) to strengthen its capital base eroded by investment losses and exposure to risky investments. Terms of the capital funding, the second by a major Dutch financial company, were similar to a 10 billion euros deal struck last week between ING and the government, which earlier this month set aside 20 billion euros for capital injections.
Aegon, based in The Hague, will get the 3 billion euros to shore up its capital but will have to repay the government at a premium or pay a steep 8.5 percent interest rate. Shares in Aegon, which had fallen since early September by 60 percent to lows not seen since 1993, were trading flat in Amsterdam at 3.39 euros as of 0945 GMT. The DJ Stoxx European insurance index was also flat.
The Dutch Finance Ministry said Aegon was a "healthy and well-run" insurance business and Chief Executive Alex Wynaendts sought to reassure investors and policyholders of its solvency. "There should be no doubt whatsoever about Aegon's ability to fulfil its long-term obligations," Wynaendts said on a conference call. "Our objective is to pay back (the government) as soon as we can, depending on market conditions."
Aegon said in a statement it now expects impairments of about 400 million euros before taxes and a net loss of 350 million euros for the third quarter, adding that it is scrapping its year-end dividend payment.
"The loss was a little worse than expected," said SNS Securities analyst Renata Brand. "The question will be what will 2009 bring (in losses). But it (the capital injection) will definitely give them quite a substantial buffer, making them now among the better capitalised insurance companies."
The Dutch government will also appoint two directors to Aegon's supervisory board who will oversee auditing, compensation and nominations, and Aegon's senior management will forego all performance-based income, in cash, options or shares, for 2008.
The capital injection will be provided to Aegon's largest shareholder, a foundation that controls 34 percent of the company's voting rights. This will in turn buy non-voting perpetual securities, convertible into shares, from the company. Terms of the injection are nearly identical to the deal between the Dutch government and financial group ING announced last week.
After one year, Aegon will be able to buy back the securities it issues at 150 percent of face value, or 6 euros per share, or convert them into shares. The securities carry a coupon of at least 8.5 percent. Earlier in October, the Dutch government said it would set aside 20 billion euros to protect financial companies. Smaller firms such as SNS Reaal, Van Lanschot and BinckBank have said they did not need any government money. Aegon said shareholders' equity stood at 9.4 billion euros at the end of September.