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The Belgian, Dutch and Luxembourg are investing in Fortis €11,2 billion

Financial newsThe Belgian, Dutch and Luxembourg rode to the rescue of Fortis with a €11.2 billion bailout to keep the US-born financial crisis from claiming a victim in Europe.

Top officials from the three countries hastily hammered out plans to partially nationalise Fortis over the weekend after the banking and insurance group failed to dispel liquidity concerns in recent days. "The important thing is that it's a Benelux agreement. The governments are directly intervening to take control of the three banks in the three countries," Belgian Finance Minister Didier Reynders told a press conference.

"We said that we would not leave any client by the wayside," he said. Fortis saw nearly a quarter of its value on the stock market wiped out over the last week as it battled to dispel repeated concerns about its liquidity, insisting as recently as Friday that it had ample funding.

Despite such assurances, Fortis shares plummeted more than 20 percent on Friday alone, and that was before the surprise announcement that chief executive Herman Verwilst was stepping down.

Under the hastily arranged rescue, Belgium will make the biggest contribution, taking a 49% stake in the Belgian arm of the company, Fortis Bank NV/SA, for €4.7 billion. The Dutch government will take a 49 percent stake in the Dutch arm, Fortis Bank Nederland Holding, for 4.0 billion euros and Luxembourg will buy a 49 percent stake in Fortis Banque Luxembourg for 2.5 billion euros through a convertible loan.

Dutch Finance Minister Wouter Bos said the four billion euros were "not wasted money as in exchange we gain the right to vote in the bank, as well as influence, something which is appreciated by depositors and households in these uncertain times". "We are giving people security, Fortis will be stronger," Bos told Dutch television.

"Circumstances are extreme, these are no normal times," he added, calling the rescue operation "a strong signal that the three governments are ready to back a bank in trouble".

The rescue also foresees the sale of Fortis' recently acquired interest in Dutch bank ABN Amro and the departure of its chairman Maurice Lippens. Hours after assuring that the group did not face the prospect of failure, chief executive Herman Verwilst unexpectedly stepped down late Friday and was replaced with immediate effect by the head of its banking division, Filip Dierckx.

While a takeover of Fortis had been the preferred solution, French banking group BNP Paribas pulled out of negotiations because of disagreement over the price and guarantees, several sources close to the talks said.

Fortis management and the Belgian government balked at BNP Paribas' offer of 1.6 euros per share - which was well below the 5.18 euros the share closed at on Friday. The drama surrounding Fortis was also a sign that Europe's weakest banks were unlikely to emerge unscathed from the US-born crisis currently roiling the financial sector.

Amid concerns over Fortis, Spanish banking giant Santander said early Monday it would take over the retail deposits and branch network of British bank Bradford and Bingley as top British officials tried to secure its future.

German newspaper Financial Times Deutschland reported that German mortgage lender Hypo Real Estate was on the brink of bankruptcy. The turmoil in Europe's banking sector comes as leading US lawmakers agreed an unprecedented plan to rescue struggling financial institutions and avert an economic meltdown.

Source: Financial Times
Date: 29.09.2008 [193]

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