Belgian, Dutch Central Banks Seek Solution for Fortis

Sept. 28 (Bloomberg) — Discussions between European, Dutch and Belgian officials on the future of Fortis, Belgium’s largest financial-services firm, carried into the evening as they sought a “solution” for the beleaguered bank.

Dutch central bank chief Nout Wellink and Finance Minister Wouter Bos went to Brussels for talks with the Belgian government and regulators. European Central Bank President Jean-Claude Trichet met with Belgian Prime Minister Yves Leterme and Finance Minister Didier Reynders today.

Fortis fell a record 20 percent in Brussels trading two days ago on concern the firm would struggle to raise the 8.3 billion euros ($12.1 billion) it’s seeking to bolster reserves. The bank said Sept. 26 its financial position is “solid,” and replaced interim Chief Executive Officer Herman Verwilst with Filip Dierckx, who heads the banking unit. Managers and government officials are considering a possible sale of part or all of the bank, the Wall Street Journal reported, citing unidentified people familiar with the situation.

“Fortis failed to restore confidence on its own and that can only be done now with the help of the regulatory institutions or rivals,” said Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about $1.1 billion, including Fortis shares.

Fortis has fallen 71 percent this year in Brussels, the second-worst performance among the 69 companies on the Bloomberg Europe Banks and Financial Services Index, cutting the lender’s market capitalization to 12.2 billion euros ($17.8 billion).

ABN Amro Purchase

The bank, based in Brussels and Amsterdam, needs more capital after spending 24.2 billion euros on ABN Amro Holding NV assets last year, just as the U.S. subprime-mortgage market started to collapse. Fortis has about 5.2 million retail customers, employs about 85,000 people and operates 2,500 retail branches.

A “temporary” nationalization of Fortis is becoming more likely as takeover talks with possible buyers aren’t proceeding smoothly, newspaper De Tijd reported, without citing anyone. Fortis management was still holding talks with ING Groep NV and BNP Paribas SA today, De Tijd said, though the price on the table is said to be too low for Fortis and the government.

Het Financieele Dagblad said today on its Web site, citing unidentified people, that ING had dropped out as a possible buyer of either Fortis’s Dutch business or the company as a whole.

Whatever the outcome of the talks, the result must be “a solution that respects European legislation,” said Peter Poulussen, a spokesman for Leterme. There will be further meetings with “all actors involved,” he said.

Hein Lannoy, a spokesman for the Belgian financial regulator CBFA, said: “We are working on enhancing the confidence in the market of the Fortis share.”

Bradford & Bingley

Peter Jong, a spokesman for Amsterdam-based ING, and Jonathan Mullen, a spokesman for BNP Paribas in Paris, declined to comment. Wilfried Remans, a spokesman for Fortis, also declined to comment and referred to the company’s statements on Sept. 26.

The talks over Fortis are taking place as the U.K. government agreed to step in to protect Bradford & Bingley Plc depositors, stopping short of confirming reports that the nation’s biggest lender to landlords will be nationalized.

In the U.S., lawmakers said they made a breakthrough in talks on a $700 billion plan to revive the credit markets and expect to announce an agreement on legislation later today. The plan would let the Treasury begin purchasing distressed debt securities from financial companies affected by the record number of home foreclosures.

Fortis last week said it had earmarked for sale banking and insurance businesses that may be valued as high as 10 billion euros. The Belgian company said it won’t sell assets at fire-sale prices and doesn’t have an urgent need for funds.

Asset Sales

The financial-services company said on June 26 scrapped a 1.4 billion-euro dividend and sold 1.5 billion euros of shares to investors, including Ping An Insurance (Group) Co.

Verwilst and Dierckx appeared together at an impromptu press conference in Brussels two days ago to reassure investors about the capital-raising plan.

Fortis has about 3 billion euros of bonds maturing this year and needs to refinance an additional 7 billion euros next year, said Ivan Lathouders, an analyst at Banque Degroof SA in Brussels, in a report last week.

Fortis, formed in the 1990 merger of the Dutch insurance company NV Amev, Belgian insurer AG Group and the Dutch bank VSB, said last week it had a funding base of more than 300 billion euros from sources including retail and private deposits and institutional investors.

The company reported a 49 percent decline in second-quarter profit on credit-related writedowns on Aug. 4.

The banking business’s core Tier I capital ratio, which measures a bank’s ability to absorb losses, was 7.4 percent at the end of June, compared with Fortis’s own target of 6 percent.

Short-Selling Restricted

The company’s structured credit portfolio, which includes collateralized debt obligations and U.S. mortgage-backed securities, amounted to 41.7 billion euros at the end of June. Fortis said Aug. 4 the pretax impact of the credit market turmoil on its earnings was 918 million euros in the first half.

Belgian and Dutch regulators restricted short-selling in the shares and derivatives of financial companies for three months last week to curtail a market rout. The rules require investors betting on a decline in stock prices to arrange to borrow the shares before selling them. The Belgian and Dutch regulators also requested investors to refrain from lending the securities.

To contact the reporters on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.netMartijn van der Starre in Amsterdam at vanderstarre@bloomberg.net

Last Updated: September 28, 2008 14:21 EDT
By Jurjen van de Pol and Martijn van der Starre

Source: Bloomberg

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