As agreed with the European Commission, Aegon NV (AEG) yesterday repaid €563 million — part of the €3 billion it received in support during the credit crisis in 2008 — to the Dutch government. Aegon has now paid back half of the loan money, the first repayment of €1 billion having been made in November 2009.
The total payment of €563 million includes a repayment of €500 million to repurchase 125 million convertible core capital securities at 10.3% premium or €52 million, besides €11 million interest accrued since May 25, 2010. The company is expected to maintain its right to convert the convertible core capital securities into common shares as of December 1, 2011.
The repayment, including the interest, was made from the surplus capital generated during the third quarter from Aegon’s operations. The repayment was further approved by the Dutch Central Bank.
The European Commission had made certain agreements with Aegon on August 17 and imposed various behavioral restrictions on Aegon until the full repayment of €3 billion is made to the Dutch government.
As per the agreement, Aegon is expected to repay the remaining €1.5 billion by the end of June 2011. Aegon cannot go ahead with any acquisitions except in the Spanish market. Aegon is also barred from pursuing a price leadership position in its residential mortgage and Internet savings businesses in the Netherlands. It is also not supposed to pay any dividends on its common shares until then.
These restrictions may have proved to be a blessing in disguise to Aegon. The checks have shored up the company’s capital position, which it has been trying to consolidate since June 2008, with efforts to reduce its exposure to financial market risks, curtail costs and improve operational efficiencies. As an indirect help, the commission’s agreements state that the total premium on the final €2 billion repayment will be reduced to 40% from 50%.
Aegon is attempting to enhance its operating efficiency by focusing on its core businesses such as life insurance, pension and asset management, and is also seeking strategic options for its Transamerica Reinsurance business that could even include a sale.
Additionally, Aegon is also making vigorous efforts to restructure its U.K. business to improve returns, projecting cost reductions of about 25% by the end of 2011. Aegon continues to work on its long-term strategic priorities to reallocate capital to businesses with higher growth and better returns in order to maximize profits and reduce risks.
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