Fortis gets €11.2 billion government injection
Mon 29/09/2008 - 16:18
The Dutch-Belgian banking giant Fortis NV will be partially nationalized. The governments of Belgium, the Netherlands and Luxembourg are injecting €11.2 billion euros to rescue the bank after investor confidence plunged last week.
Belgian Prime Minister Yves Leterme (Flemish Christian democrat) announced this after a weekend of intense discussion over the lot of the bank-insurance company.
Fortis NV chairman Maurice Lippens is resigning his post; former CEO Herman Verwilst was replaced on Friday.
The aim was to reach an accord between the three governments and their central banks before the opening of the stock exchange Monday morning.
Fortis lost one third of its market value last week.
After the group's shares plunged to new depths Friday, Filip Dierckx took over as new Fortis CEO from Herman Verwilst.
The three governments of the Benelux countries have decided to pump €11.2 billion into Fortis. The Belgian government is injecting €4.7 billion in to Fortis Bank Belgium; The Dutch government is investing €4 billion in its own branch and Luxembourg is intervening with €2.7 billion.
The investments give the Benelux governments a 49% stake in the group, and a majority in the Board of Directors. Maurice Lippens, current chairman of the board, is resigning; the three governments will have a major say in who will replace Mr Lippens.
Fortis will be obliged to sell the Dutch ABN Amro Bank, which it recently acquired. It is not clear who Fortis should sell to, nor at what price.
The three governments refrain from calling this a 'nationalisation' of the bank. They say that the governments are only temporary shareholders to avert the crisis.
In Belgium the capital injection is happening through the Federal Investment Company- which invests in companies for the government. The Investment Company will probably borrow money to buy the shares. This means that the operation will not have a direct consequence on the budget.
Pride comes before a fall
Fortis bought its share of ABN Amro at the top of the market, just a few weeks before the crisis in the United States triggered a global credit crunch. Looking for the capital to finance the purchase brought Fortis to its current plight. Jean-Paul Votron, the CEO who led Fortis into the Amro deal quit in July amid shareholder anger.
Too big to fail? Intense discussions took place all weekend
Before the decision was taken for the governments of the Benelux countries to inject capital into Fortis there were intense talks between Guy Quaden, governor of the Belgian National Bank; Dutch Finance Minister Wouter Bos; and head of the European Central Bank Jean-Claude Trichet.
Restoring confidence in Fortis was the main thing as the company is too big and too politically sensitive to be allowed to go under.
Biggest bank in the Benelux
With 85,000 employees worldwide, Fortis is Belgium's biggest private sector employer. Some 1.5 million Belgian households (nearly half in the country of 10.5 million) have accounts or insurance policies at Fortis.
"No saver will be left by the wayside," pledged PM Yves Leterme, seeking to reassure the public and avoid a run on withdrawals from the bank.