KBC gets a boost from legacy CDO book

Write-ups on its CDO positions boosted KBC’s income by €564 million in 2010, demonstrating how legacy structured credit books have become a source of big profits for some banks recently. The Belgian bank posted a €296 million increase in the value of its CDOs in the fourth quarter, according to results released today.

KBC still has a long way to go before it makes up for its previously losses on its CDOs: it wrote them down by €1.8 billion in 2009. But the rebound in prices is providing a strong boost to banks which, like KBC, did not liquidate their structured credit portfolios during the crisis.

KBC’s CDO book is unusual, in that it consists of self-managed synthetic CDOs, based mainly on corporate credit. A unit of the bank known as KBC Financial Products, managed these portfolios actively, following a hedge-fund like strategy ranging across single names and correlation.