Belgium, the Netherlands and Luxembourg pledged more than 11 billion euros (US$16 billion) to Dutch-Belgian bank and insurance giant Fortis NV to keep it from insolvency.
Belgian Prime Minister Yves Leterme said on Sunday that the bailout shows savers and investors that debt-laden Fortis will not be allowed to fall victim to the global credit crisis after its share price plummeted in recent days.
Leterme announced that Fortis was given a 11.2 billion euro lifeline after weekend talks between the three countries, EU and national banking officials.
The deal will force the bank — which has headquarters in both Brussels and the Dutch city of Utrecht — to sell an expensive stake in Dutch bank ABN Amro, which it partially took over last year, loading itself with debt to pay for it.
The Dutch government refused to name potential buyers, saying it was up to them to come forward.
Fortis will also have to recruit new company leaders, to be nominated by the three governments.
“We have taken up our responsibility, we did not abandon the savers,” Leterme told reporters.
Dutch Finance Minister Wouter Bos said the lack of market confidence in Fortis was unjustified and that it was a good bank.
The bailout will see Belgium invest 4.7 billion euros and the Netherlands 4 billion euros in Fortis’ banking operations in the two countries. In return, they each receive 49 percent ownership in those national arms of the bank.
Luxembourg will invest 2.5 billion euros in the bank’s Luxembourg operations, also for a 49 percent stake.
Fortis chairman Maurice Lippens will be forced to resign and will be replaced by a candidate from outside the company.
The deal, orchestrated by the three neighboring countries and European Central Bank chief Jean-Claude Trichet, is meant to restore confidence in the bank before the scheduled reopening of markets yesterday after a tumultuous week of imploding share values at Fortis.
Nout Wellink, the head of the Dutch central bank, said the US financial crisis was partly to blame for the Fortis crisis.
“What is happening in the US has most certainly had an impact on the financial sector in the rest of the world,” he told reporters. “It will hit first banks in a special position ... Due to rumors, I have to say, Fortis became a bank in a special position.”
Belgian officials also announced on Sunday that they planned to offer better guarantees for all retail deposits at Fortis, the country’s largest bank and largest private employer.
Belgium has just over a third of the company’s 62,000 employees worldwide.
Fortis named its third chief executive officer in as many months on Friday after insolvency fears caused the company’s shares to tumble to 5.18 euros, their lowest level in more than a decade. The shares have lost more than three-fourths of their value in the past year.
Fortis denies any imminent solvency problems, but it has been in trouble since it took part in a three-bank consortium last year that acquired ABN Amro in a 70 billion euro deal that was the largest takeover in the history of the banking industry.
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