The Dutch government said on Friday it will buy the operations of Fortis NV in the Netherlands for 16.8 billion euros (US$23.2 billion) and nationalize them, after a previous bailout failed and the troubled bank teetered on the edge of insolvency.
Dutch Finance Minister Wouter Bos said the deal, which effectively splits Fortis in two along national lines, would give the Belgian-controlled part of the company cash it needs badly to survive.
Bos said that clients had been withdrawing money and other banks were refusing to lend to Fortis because troubles “hidden” in its Belgian operations were becoming apparent.
The deal safeguards the Dutch operations “from the danger of infection from the part that’s less healthy,” Bos said at a press conference in The Hague.
His Belgian counterpart Didier Reynders said in Brussels that Belgium would continue to “guarantee the solvability and the liquidity” of the remaining operations.
Fortis, once one of Europe’s largest financial companies, has been in escalating trouble since it agreed to purchase the Dutch banking operations of ABN Amro last year for 24 billion euros as part of a larger deal that was the largest takeover in banking history.
Bos said the deal was negotiated with Belgian officials and Fortis this week as the company showed signs of “really large liquidity problems” despite a 11.2 billion euro bailout package announced last Sunday.
The new deal will replace the Dutch part of Sunday’s bailout, in which the Netherlands agreed to buy a 49 percent stake in Fortis’ Dutch banking operations for 4 billion euros.
The rest remains unchanged. Belgium and Luxembourg bought 49-percent stakes in Fortis’ banking operations in their countries for 4.7 billion euros and 2.5 billion euros respectively.
Fortis’ downfall was its participation in a three-bank consortium led by Royal Bank of Scotland PLC that acquired ABN Amro in a 70 billion-euro deal one year ago.
Fortis had planned to sell assets to help fund its share of the deal, a strategy that analysts became increasingly skeptical of as markets soured. In July Fortis issued shares and halted dividend payments to preserve capital, but it wasn’t enough.
By the time the bailout was announced last Sunday, its stock had lost more than three-quarters of its value and the slide was accelerating.
Shares rebounded slightly this week and closed at 5.31 euros in Amsterdam on Friday.
At a press conference with the Dutch prime minister and central bank president, Bos said the country’s other banks were in no danger and he expected to make money off the deal.
“I want to underline the difference with the American situation, where the responsibility is being taken on for buying up hundreds of billions worth of bad risks,” he said. “We’re paying billions for what is in essence a solid company.”
Central Bank President Nout Wellink said Fortis would become more transparent as a result of the deal, but he hinted that the company’s troubles are not over.
“The reality is that there are liquidity problems” at Fortis, he said.
Chief executive officer Filip Dierckx said in a statement that the 16.8 billion euros would “strongly reinforce our financial position and allow us to further strengthen the balance sheet and liquidity of Fortis.”
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