The final decision on repayment, however, will be made in November, based on the market environment and economic outlook at that time.
Aegon raised the additional capital on Thursday this week from the sale of a combination of new shares and existing treasury stock. A total of just over 190 million shares was sold at an average price of EUR 5.25.
Assuming economic and market conditions do not deteriorate materially, the EUR 1 billion will be used to repay one-third of the government’s original loan by December 1, 2009. Repayment also requires the formal consent of the Dutch Central Bank.
In a statement, Aegon CEO Alex Wynaendts said the move would be “the first step toward the goal of full repayment”.
Aegon secured EUR 3 billion in core capital from the Dutch government in December 2008 – part of a broader support program for fundamentally sound and viable banks and insurance companies during the global financial crisis.
By repaying EUR 1 billion by December 1, Aegon will save approximately EUR 370 million and avoid future coupon payments on the amount repaid.
Under the terms of Aegon’s original agreement with the Dutch government, the premium for repayment goes up from 13% to 50% after December 1.
Aegon decided to launch the equity issue to take advantage of an improvement in financial market conditions in recent weeks.
Over the past month, Aegon’s own share price has gained almost 30%, an increase that significantly reduced the risk of dilution for existing shareholders from the issue of new shares.
In recent months, measures to reduce risk and free up capital from Aegon’s existing operations have helped the company build up excess capital of EUR 3.5 billion.
Aegon has already exceeded its full-year capital release target by releasing EUR 1.6 billion in the first half of the year. With some of the excess capital, Aegon will begin investing again in higher yielding, quality assets, to reverse in part some of the effects of its de-risking measures. This will have a positive impact on earnings going forward.
Mr. Wynaendts said Aegon’s strong capital position will give the company “the flexibility to deploy capital in the business and puts us in a better position to work toward the goal of full repayment of the outstanding capital to the Dutch State”.
