Belgian-Dutch banking giant Fortis, which was on the verge of a collapse, was rescued late over the weekend with the governments of Belgium, Netherlands and Luxembourg (Benelux) agreeing to a partial nationalisation and pumping €11.2 billion ($16.37 billion / Rs76,104 crore) into the bank.
Attempts to get France's BNP Paribas and Dutch financial firm ING Groep NV to acquire Fortis failed as the two banks refused to buy it wholly or partially, forcing the three governments to move in to save it from collapse. The partial nationalisation makes Fortis the bank largest European financial institution to be bailed out in the ongoing global financial credit crisis.
Prime Minister Yves Leterme of Belgium and Jean-Claude Trichet, the president of the European Central Bank, announced the deal after the emergency talks with BNP Paribas and ING Groep NV collapsed. The talks collapsed because BNP Paribas exited out of the bidding.
Fortis had come under intense pressure because of market speculation that the bank would find it extremely difficult to raise €8.3 billion it required to bolster its capital, with fears even that amount may not be sufficient as financial markets worsen.
Its stock plunged nearly 23 per cent at one point and closed on Friday with 20 per cent of its stock market capitalisation wiped out at €5.20. Its stock has fallen 71 per cent this year having fallen for the past five working days in a row.
Fortis had admitted that it had a significant exposure to sub-prime loans totaling €2.9 billion creating fears of a run on the bank. (See: Fortis to sell assets worth $14.6 billion as shares plunge: changes CEO)
The three governments released a joint press statement stating that they would pump in money to buy 49-per cent of Fortis's banking subsidiaries operating in each of their countries.
Belgium and Netherlands will acquire 49 per cent stake with Belgium paying € 4.7 billion and Netherlands €4 billion while Luxembourg will give €2.5 billion as a mandatory convertible loan for 49-per cent stake in the Luxembourg operations of Fortis.
Fortis will also sell its part of the stake in the recently acquired ABN Amro bank and chairman Maurice Lippens will be asked to resign and will be replaced by an outsider. Maurice Lippens had late last week assured investors that the bank would not go bankrupt.
With its headquarters in both Belgium and Holland, the government of both countries was forced to rescue Fortis as majority of people in both countries bank with it, apart from it being the largest employer in the private sector.
The government in a television broadcast has reassured the public that their savings were safe at Fortis in a television broadcast.