BNP Paribas to take majority stake in Fortis

BRUSSELS — Officials of troubled Belgian bank Fortis NV acknowledged Monday they had no choice but to seek a buyout by another bank because of the increasing problems the company suffered due to the global financial credit crisis.

French banking giant BNP Paribas agreed late Sunday to take a 75 percent stake in the remaining operations of Fortis amid growing fears it could no longer withstand market uncertainties over its solvency.

"In the current market conditions, we did not have any other choice," but to seek a buyer, Fortis' Chief Executive Officer Filip Dierckx told reporters on a conference call. "As a result of this transaction, the Fortis Group is exiting the banking business and the Belgian insurance business."

Prime Minister Yves Leterme, announcing the deal on Sunday, said the transaction gives the Paris-based bank control of Fortis' Belgian and Luxembourg operations, including full ownership of the bank's insurance and investment arms.

The Belgium and Luxembourg governments also will receive a blocking minority share in BNP Paribas, the largest euro-zone bank by assets.

"No client or depositor (at Fortis) will end up in problems due to the financial crisis," Leterme told reporters late Sunday after two days of closed-door talks between BNP Paribas and government officials.

The deal carves up the carcass of Belgium's largest bank which tried last year to become a bigger European player by buying the retail banking arm of Dutch rival ABN Amro.

That 24 billion euro ($33 billion) purchase — part of the largest takeover in banking history — pulled Fortis under when the share price plunged on fears it could not secure the loans to pay for it.

Fortis' troubled credit derivatives portfolio — which has run up huge losses — was marked down to 10.4 billion euros ($14.4 billion) and split off into a special-purpose vehicle. The Belgian state will share any possible pain from further losses, holding a 24 percent stake in that. BNP Paribas will have 10 percent, with Fortis Group keeping the rest.

Dierckx insisted the company had "done more than we should have done" in owning up to how much it may lose on complex asset-backed investments — such as those based on subprime U.S. housing loans. Few European banks have been full and frank about their woes.

What remains of an independent Fortis is its international insurance operations with branches in Britain, France and Hong Kong as well as joint ventures in Luxembourg, Portugal, China, Malaysia, India and Thailand. It also holds two-thirds of the credit derivatives portfolio and some cash — although it did not say how much.

Leterme said it was important for another bank to take over troubled Fortis to restore confidence in the company before markets reopen Monday.

A previous bailout last week, which left Belgium and Luxembourg with 49 percent share stakes each in Fortis failed to quell widespread concerns over the bank's solvency.

Under the deal announced Sunday, the Belgian government will buy all remaining shares in Fortis Belgium for 4.7 billion euros ($6.5 billion) and then sell a 75 percent stake to BNP Paribas for 8.25 billion euros ($11.4 billion) and receive an 11.7 percent minority share in BNP Paribas. Luxembourg will get a 1.4 percent share in BNP.

The Belgian government will also keep a 25 percent stake in Fortis' Belgian operations and Luxembourg will hold a 33 percent share in the bank's Luxembourg subsidiary. BNP Paribas will also buy all of Fortis Insurance Belgium for 5.73 billion euros ($7.9 billion).

Leterme said the minority stakes in BNP would give the governments power to ensure the French bank does not move to cut jobs at Fortis. The bank currently employs some 25,000 in Belgium.

Banking officials and authorities held closed-door talks all weekend in an effort to restore credibility and trust in Fortis after the Dutch government announced Friday it was buying Dutch-held operations of the bank — the Netherlands' largest — for 16.8 billion euros ($23.2 billion).

Fortis last week lost a potential buyer of half of its asset management arm, Fortis Investments, when Chinese insurer Ping An Ltd backed out of a deal to pay 2.15 billion euros ($3.39 billion) for the unit. Ping An says it has lost $2.3 billion on its 5-percent stake in Fortis NV.

The company's share values have plummeted some 70 percent since January and they fell Friday to 5.42 euros ($7.50). But the deal announced Sunday likely will wipe out the common shareholders since the Belgian government will hold the remaining 25 percent stake in Fortis' Belgian operations not held by BNP.

Media reported that it was unclear whether trading in Fortis would continue as usual, since parts of the Dutch takeover of its operations in the Netherlands and the BNP Paribas deal still needed to be finalized. Share trading was suspended on Monday.

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AP Business Writer Aoife White in Brussels contributed to this report.

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