Aegon secures extra capital to withstand market turmoil

October 28, 2008

Aegon has secured EUR 3 billion in additional capital in an agreement involving both the Dutch government and the company’s largest shareholder, Association Aegon.

Aegon Chief Executive Officer, Alex WynaendtsCEO Alex Wynaendts said the agreement will “strengthen Aegon’s position during this period of uncertainty and unprecedented economic turmoil”.

The additional capital for Aegon is part of broader support that the Dutch government agreed to extend last month to fundamentally sound and viable banks and insurers in the Netherlands.

Aegon is accessing the capital through its largest shareholder, Association Aegon, which was set up precisely for the purpose of protecting the long-term interest of the company’s stakeholders.

In his statement, Mr. Wynaendts said additional resources from the Dutch State will allow Aegon “to enter 2009 with a significantly reinforced capital position”. 

“There can be no doubt whatsoever about Aegon’s ability to fulfill its long-term obligations,” he went on, emphasizing the company’s solid financial position. “Safeguarding the trust and confidence of our shareholders, customers and employees remains our main priority.”

The additional funds from the Dutch State will strengthen Aegon’s capital buffer – an important safeguard against any further downturn in global equity and credit markets.

Faced with worsening market conditions, Aegon has accelerated measures announced last June to reduce risk and free up extra capital from its businesses. These measures – combined with additional capital from the Dutch State and the decision to forego the final dividend for shareholders – will ensure Aegon can maintain a level of capital well above AA rating requirements.

In return for the additional capital, Aegon will issue special non-voting securities to Association Aegon. The Association will use income from these securities to service its loan from the Dutch State. Of the total EUR 3 billion, Aegon has the right to return EUR 1 billion to the State at any point within the next twelve months should financial markets improve and the company decides it no longer needs this extra one billion in capital.

Importantly, this arrangement will ensure there is no change to Aegon’s overall ownership structure and will avoid dilution of existing shareholders. The Dutch State will not become a shareholder in Aegon, but the government will appoint two representatives to the company’s Supervisory Board.

In addition to the announcement that the company will participate in the Dutch government capital facility program, Aegon released preliminary earnings data for the third quarter. As expected, earnings were affected by turmoil on world financial markets. Underlying earnings before tax – the company’s preferred measure of profit – are expected to decline 28% to approximately EUR 500 million, while the net loss for the quarter is likely to total around EUR 350 million – the result primarily of increased impairment charges and lower financial markets. 

Association Aegon

Association Aegon – or Vereniging Aegon in Dutch – was established to protect the long-term interests of all Aegon’s stakeholders – its customers, employees, shareholders and business partners. Association Aegon owns 11% of Aegon’s common shares plus all the company’s outstanding preference shares, which carry more votes. Combined, Association Aegon controls 34% of the company’s voting rights, but the Association has agreed to waive a portion of these rights in all but exceptional circumstances, bringing its stake down to 24%.