Financial services stocks on Wall Street soared after the October announcement that US law would be changed to allow combined banking and insurance operations. It also brought a smile to the face of Patrick Verelst, senior IRO for Benelux-based financial giant Fortis. He is confident that the earlier change in Dutch banking laws allowing the marriage of banking and insurance operations gives him something of an advantage. Fortis, after all, is the end result of cross-border mergers of some significant names over the past few years. Belgium’s Generale Bank and ASLK-CGER linked up with Generale Bank Nederland, MeesPierson and VSB Bank in the Netherlands to spawn the Fortis group as it stands today.
Even so, Verelst suspects that not enough investors know just how good Fortis is. ‘It’s pretty much common knowledge that financial stocks will be significantly influenced by interest rates. But it’s far less true for a group like ours. If interest rates go down it’s bad news for the insurance side, but good for banking, and vice versa.’ As well as his own efforts to publicize the phenomenon, he expects there to be more awareness in the future as groups like Fortis and the Scottish Widows/Lloyds Bank link-up become more common, not least in the US where Fortis has been expanding both its client base and its share-ownership.
In & out
Patrick Verelst had worked as both an analyst and as a portfolio manager with two banks and an insurance company both inside and outside the Fortis group. Then in 1995 he was recruited as senior investor relations officer. He comments that investor relations in the Netherlands and Belgium is ‘less well known than in the US and UK, but the situation is changing here, and indeed all over continental Europe.’ With admirable investor relations assiduity, he then adds a quick little commercial: ‘And that’s one of the attractions of European stocks to American investors: the same things which happened in the US are happening here.’
He found the transition from analysis to IR relatively easy. ‘You are dealing with the same data but from another perspective. It’s as interesting and as challenging as being an investor or an analyst. Meeting many people is a very pleasant aspect of this job.’
Despite the increasingly global nature of the business, he still maintains that investing is mainly a people business, and investor relations is a people business too. ‘You have to go and meet the investor and the investor has to be able to meet you and make his or her own assessment of what top management is worth. That’s not something that can easily be replaced by an internet presentation, or a slide show, or a conference call.’
The financial success also helps him counter one of the frustrations of financial sector IR which he identifies as ‘you can’t show what you produce, it’s more abstract. So we try to get the message across that we focus mostly on asset accumulation businesses: retail banking, asset management, life insurance, private banking, and to a lesser extent on corporate banking or non-life insurance.’
Structural problems
Mind you, Verelst has an anything but straightforward story to tell. At first glance Fortis’ corporate governance structure makes the Byzantine Court seem transparent and simple by comparison. Fortis (Belgium) shares trade in Brussels, London and Luxembourg, while Fortis (Netherlands) shares trade in Amsterdam, London, and as a level I American Depositary Receipt in New York.
The company also has simultaneous annual meetings in the Netherlands and Belgium. By a happy coincidence, the board of directors for both companies is the same, although each is allowed to appoint seven ‘local’ members. Only the Belgian board took the opportunity, adding among others a baron, two counts and a viscount to their ranks.
However, this is not really as complicated as it sounds. In 1999, Fortis equalized the two stocks, Belgian and Dutch, so that both will always have the same earnings per share ratio, the same dividends and the same net assets per share. In a fit of crazy subversion, they even introduced voting rights for the Dutch shares. ‘It might be astonishing for you, but in most cases there are no voting rights for Dutch shares,’ reports Verelst, as he begins to explain the structure.
Fortis did consider issuing just one stock, but with more than half of its stockholders being in Belgium and the Netherlands, it took into account the myriad fiscal problems that this would spawn for local shareholders and so kept the two separate denominations. Verelst suspects that other companies will follow the solution as transnational mergers become increasingly common, ‘especially in euroland, which still has different taxation in different countries.’ And he reassures that ‘if, like us, some 70 percent of your free float is held by the market, then you have to be transparent.’
With some 200 investors congregating in Belgium for the company’s annual meeting, Verelst expects great things from the enfranchisement of the Fortis (Netherlands) stockholders, ‘I was amazed by how many retail, individual holders have some very good questions at the annual meeting. When these shareholders realize the joys of our group, our annual meetings will turn into the Woodstock of Capital. At least that’s what we hope,’ he jokes.
Executive responsibility
The day-to-day management of the company is in the hands of the six member executive committee, one of whom, Joop Feilzer, is responsible for investor relations and strategy. In common with this corporate dyarchy, the investor relations staff of four is split between Belgium and Holland. The director of investor relations, David Voute, is based, with colleague Annegien Blokpoel, in the Dutch office while the Belgian office is populated by Patrick Verelst and Frank Dausy. All of the members of the executive committee are actively engaged in the Fortis investor relations program, particularly in the roadshows, and the two national offices share and alternate in the work.
Verelst took the last roadshow to the UK while Annegien Blokpoel traveled to the US, ‘And we always do it simultaneously, which is also a nice feature,’ Verelst smiles. The time before, the venues were reversed, but he explains, ‘Of course, we have the same database, and our input and reports are accessible to each other. We develop the presentations together – the figures are the same and so is the strategy.’
Verelst comments, ‘Benjamin Graham, the father of financial analysis, used to say that investing is most interesting when it is at its most business-like. The same is true of investor relations, I’d say. The success of this group is the same whether it is told by my colleagues or by myself.’ And that success story is told, originally at least, in English to the analysts in Brussels. That allows the French, German and UK-based analysts to join the presentation, too. It also avoids the tensions in Belgium between Dutch and French, although for local presentations the fluently multilingual team can conduct the presentation in whichever language is needed. Such cosmopolitanism shouldn’t be too much of a surprise since, as Verelst points out, ‘Belgium is a small country, you cross the road and you are already abroad.’
Stamping the brand
Fortis is now an established brand, at least for investors, and is in the course of a corporate branding exercise that is an attempt to combine its locally-trusted business names in the US, UK and elsewhere with the Fortis name. ‘Branding is part of the corporate strategy but I feel that it’s not really the concern of investor relations. IR is to do with continuing availability and rapid response to the market, with transparency, but it’s not immediately concerned with the corporate branding,’ Verelst says firmly. Investors in Fortis have been much more aware of the corporate brand than customers have.
Asked who his investors are, Verelst responds, perfectly deadpan, with an answer that is at the heart of successful investor relations. ‘They are very smart people. In choosing Fortis they have significantly outperformed the market over the last 20 years, because of the low risk profile combined with the high growth profile of the company.’ However, establishing their wisdom is one thing, getting their names and addresses is another thing altogether, since Belgium still operates in a bearer share system.
On the other hand, in the Netherlands, a group of charitable foundations – the original owner of the bank stock – still holds some 20-25 percent of the stock. ‘They could quite easily sell their stock if they weren’t happy,’ he comments laconically, ‘but they are intelligent people, so they are happy and they stick with their stock.’
And to keep them happy, Fortis arranges a special day for them to explain the business and reassure them that the alms trade will be kept well supplied. Addressing a quarter of your investors in one meeting is highly productive investor relations.
That leaves a free float of Belgian and Netherlands shares of some 70 percent – of which 20-25 percent are retail investors. While investor relations is necessarily loaded toward institutions, the Fortis investor relations team are at pains not to neglect the individuals. ‘If you were managing the quality control of your production process, you would never be able to get away with forgetting about the last 25 percent, and the same argument is true for investors.’ Verelst declares, agreeing with United States Securities & Exchange Commission chairman Arthur Levitt, that individual investors ‘should also get the same information as professional investors.’
‘We do a number of presentations for retail investors in the National Association of Investors Clubs in the US and similar bodies. And retail investors can use the internet to get the annual report, the quarterly results, press releases and so on. They also have the chance to put questions to our web site – but of course this is time consuming to respond to.’
Going global
With the company’s expanding global reach, its share-ownership is spreading and now over 10 percent of the group’s shares are owned in the US and UK, where many institutions had been waiting to take advantage of last June’s equity offering to buy in. With expanded ownership comes expanded responsibility, and he cites the level I ADR program in New York as a spur to greater efforts. ‘You have to work on your investor base if you want to increase your exposure to the US markets, you have to be more available to the market, to be doing more roadshows. In the US it’s clear that we have a nice challenge to meet more people, to spread the word.’
In Europe, the quarterly result presentations alternate between Netherlands and Belgium, and they are immediately available on the web site. Those presentations are quickly followed up by some hard road work, taking in the roadshow presentations in the UK, Ireland, France Germany, Spain, Switzerland, Italy and Scandinavia. ‘If we want to be more active in the US then obviously we must visit more cities there, which is not always the case right now. It should remain a roadshow and not a flight show: there are so many locations, it’s easier to handle a number of questions by phone.’
Targeting plans are not yet finalized but the group is heading toward a vastly expanded international shareholder base, especially in Europe. But that does not mean to say it has lost sight of the US market. ‘We do at least two roadshows a year in the United States, and we also participate in conferences, but if we want to work more proactively in the States then we should be doing as much as we do in Europe. That is something that we are working on and developing.’
Apart from the analyst presentation itself, most of the roadshow is spent on one-on-ones since Verelst repeats, ‘it’s much more interesting to have the opportunity to meet separately with management than it is to attend some large group presentation. As I said before, investing is a people business.’
