Fallout for Dutch-Belgian Bank With Bailout, Fortis Is Back Where it Started

With the forced sale of its Netherlands activities of ABN Amro, Dutch-Belgian banking and insurance company Fortis will be back where it started. In a little over a year, Fortis has changed from a prestigious financial institution to a pariah in the banking world.

By Heleen de Graaf and Philip de Witt Wijnen


Fortis headquarters in Brussels
AFP

Fortis headquarters in Brussels

Over-confidence, bluff and arrogance have proved an almost fatal cocktail for Fortis which was saved from collapse by a financial injection of almost €11.2 billion on Sunday.

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This article has been provided courtesy of NRC Handelsblad. NRC Handelsblad and its companion Web site NRC.nl are two of the most respected brands in Dutch journalism.
The intervention by the Dutch, Belgian and Luxembourg governments enabled Fortis to narrowly avoid the nightmare scenario of a run on the bank. The finance ministers have forced Fortis to put its stake in ABN Amro up for sale.

No definite buyer has yet come forward. If it does, it will have a bargain on its hands: The sales price is estimated to be less than half of what Fortis originally paid for it last year.

But less than 12 hours after Dutch Finance Minister Wouter Bos, his Belgian counterpart Didier Reynders and Belgian Prime Minister Yves Leterme thought they had weathered the storm, the deal came under pressure again.

Investors initially reacted favorably to the rescue deal and shares rose by 15 percent. But shortly after 10 a.m. on Monday morning, with new CEO Filip Dierckx only minutes into a press conference, shares nose-dived to nearly €4, a 16-year low.

Historic Day

The contrast with last year, when banking staff had also worked long and hard on negotiations, could not have been greater. One year ago, Fortis became the proud co-owner of ABN Amro, the Netherlands' largest financial institution. Together with the Royal Bank of Scotland and the Spanish bank Santander, the relatively small Fortis forced its biggest rival to its knees and became the largest bank in the Benelux.

But the euphoria was not to last. The credit crisis that had already reared its head in October last year created losses that Fortis could only manage with a great deal of difficulty, especially on top of the €24 billion it had shelled out for its part of ABN Amro. Solvency became a problem and when last week there were also rumors about a liquidity crisis at the bank, intervention by the national regulators became inevitable.

Mix-and-Match Solution

The result was a mix-and-match version of the US rescue package. Fortis' banking arm was to be semi-nationalized and ABN Amro would have to be sold.

The weekend's lengthy negotiations included French commercial bank BNP Paribas and Dutch bank ING but bids from both banks for part or all of Fortis were deemed unacceptably low.

The present solution is inevitably a temporary one. Dutch Finance Minister Bos has said that the government's 49 percent stake in Fortis is meant to boost confidence and will be sold off again as soon as Fortis is back on its feet, possibly leaving the taxpayer with a little extra.

Severe Impact

In the meantime, rumors continue to circulate that ING and BNP Paribas still have their eye on ABN Amro. A significantly lower selling price, however, would impact severely on Fortis' strategy to become one of the top players on the pan-European financial stage.

Dierckx, the company’s third CEO in four months, said the company has taken the decision to sell ABN Amro independently but it is widely believed that the pressure came from the new major shareholders.

Fortis is back where it began in other ways, too. Maurice Lippens, chairman of the supervisory board, has stepped down. The 65-year-old nobleman not only masterminded the takeover of ABN Amro, but was also one of the Fortis' founders in the early 1990s.

Insurance Arm Safe

The insurance arm of Fortis is safe, Dierckx said on Monday morning. Fortis is still an important player in Belgium for retail clients and medium-sized companies, and it will remain a strong private bank for wealthy clients.

Fortis is taking time out to come up with a new strategy in the coming weeks. It will have to find a solution for those parts of the bank that were put up for sale in order to buy ABN Amro.

And is Fortis going to remain active in countries such as Poland and Turkey? At Monday's press conference Dierckx replied with the same answer he gave to most of the questions he could not answer: all will be revealed on Nov. 3, the date Fortis publishes its quarterly figures.

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