Fortis, the Belgian-Dutch banking and insurance giant, faced a takeover or break-up as European Central Bank President Jean-Claude Trichet held emergency talks with Dutch and Belgian lawmakers to restore faith in the Belgian-Dutch financial group.
Trichet, who as ECB [European Central Bank] head is responsible for safeguarding financial stability in the Euro zone, joined Belgian Prime Minister Yves Leterme in Brussels in a bid to secure the future of Fortis, including a partial or full sale or some form of state intervention, a source familiar with the situation said.
BNP Paribas and ING Group both declined to comment on reports that they could buy all of Fortis or Dutch bank ABN AMRO, which Fortis bought a year ago.
A later report confirmed that Fortis had agreed to a “shotgun nationalization” after emergency talks with European Central Bank President Jean-Claude Trichet to prevent U.S.-style financial contagion engulfing one of Europe’s top 20 banks.
The Belgian, Dutch and Luxembourg governments agreed to inject €11.2 billion ($16.4 billion) into the banking and insurance company, which will sell parts of ABN AMRO.
The problems at Fortis, whose shares dropped by a third last week on investor concerns about its liquidity and funding, stem from last year’s €70 billion [$102 billion] purchase of ABN with partners Royal Bank of Scotland and Spain’s Santander.
A key issue in any purchase of Fortis or ABN AMRO was whether the Belgian government would provide financial guarantees, a source familiar with the situation said.
At the same time, financial authorities in Belgium and the Netherlands scrambled to prepare reassurances on the integrity of the wider Benelux financial system, after holding talks late into Saturday evening, finance officials said.
Belgian financial regulator, the Banking, Finance and Insurance Commission (CBFA) was working with the central bank, examining initiatives to restore confidence in Fortis, with an announcement expected in the late afternoon or evening.
Several sources familiar with talks involving Fortis said that the financial group was preparing to announce specific and likely “substantial” steps to restore confidence.
Officials from central banks, supervisors and government treasury departments were also converging in Amsterdam on Sunday for a long-scheduled meeting of the Financial Stability Forum (FSF) chaired by Bank of Italy Chairman Mario Draghi, with a news briefing brought forward to Monday from Tuesday.
BNP PARIBAS, ING INTERESTED?
Fortis has been weighed down by its €24 billion [$35 billion] outlay for ABN in a market that is neither conducive to more capital increases nor willing to pay for the assets it wants to sell.
As its shares plummeted more than 20 percent to 15-year lows on Friday, Fortis called an emergency news conference to say its position was strong and that it would expand asset sales to as much as €10 billion [$14.6 billion] to raise cash.
The stakes are high in Belgium, where Fortis is the biggest private sector employer and where over 1.5 million households, roughly half the country, bank with the group.
Marianne Thyssen, chairwoman of Prime Minister Leterme’s Christian Democrats, told Belgian television it was important the public should know their savings were safe. “The government is ready to guarantee the full 100 percent.”
After a fifth straight day of share declines, Fortis on Friday named a new chief executive, hastily replacing interim incumbent Herman Verwilst with banking chief Filip Dierckx, 52.
In a sign of the gravity of the situation, Dutch central bank (DNB) governor Nout Wellink cancelled a weekend trip to Chicago to return to the Netherlands. Wellink and Draghi are also members of the European Central Bank’s Governing Council.
In London, regulators were in talks on the future of troubled lender Bradford & Bingley, raising the prospect that a second British bank could be nationalized [IJ Ed. Note The UK government has since announced its nationalization].
Financial players around the world were hoping that U.S. lawmakers would finally sign off on a deal to create a $700 billion government fund to buy bad debt from ailing banks in a bid to stem a credit crisis threatening the global economy.
(Additional reporting by Steve Slater in London; Editing by Paul Bolding and Alexander Smith)
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