The firm will sell Dutch operations of ABN Amro Holding NV.
Fortis became the largest European financial-services firm forced into a government rescue after the worsening global crisis shattered investor confidence.
Belgium, The Netherlands and Luxembourg will inject ¤11.2 billion ($16.3 billion) by taking minority stakes in Fortis’s banking units in each country, the governments said in a statement late yesterday. Fortis will also sell the Dutch banking operations of ABN Amro Holding NV purchased just last year.
The bailout followed a 35 per cent drop in Fortis last week in Brussels trading on concern deteriorating credit markets would leave the bank short of capital. The rescue coincided with Britain’s decision to seize Bradford & Bingley Plc, the country’s biggest lender to landlords, and Germany’s bailout of Hypo Real Estate Holding AG. The governments' actions failed to assuage investor concerns, as financial shares tumbled across Europe.
“In today’s environment, investors don’t seem willing to cut banks much slack,” said Marshall Gittler, chief international strategist at Deutsche Bank’s Private Wealth Management business in Geneva.
Fortis fell 10 per cent on concern the bailout would lead to a “significant dilution” of existing shareholders, Gittler said. The 69-company Bloomberg Europe Banks and Financial Services Index dropped 5.4 per cent, led by declines of more than 20 per cent in Dexia SA and Commerzbank AG.
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Management Changes: Belgium will buy 49 per cent of Fortis’s Belgian banking unit for ¤4.7 billion, while the Netherlands will pay ¤4 billion for a similar stake in the Dutch banking business, Luxembourg will provide a ¤2.5 billion loan convertible into 49 per cent of Fortis's banking division in that country.
Fortis didn’t identify a buyer for its stake in ABN Amro’s consumer banking unit. Fortis joined with Royal Bank of Scotland Group Plc and Spain's Banco Santander SA last year to buy Amsterdam-based ABN Amro for ¤72 billion, just as the US sub-prime mortgage market collapsed.
Fortis Chairman Maurice Lippens stepped down and will be replaced by someone from outside the company, Fortis said. The firm picked company insider Filip Dierckx to succeed Herman Verwilst as chief executive officer on September 26, just three months after former CEO Jean-Paul Votron was pushed out.
Fortis, formed in the 1990 merger of the Dutch insurance company NV Amev, Belgian insurer AG Group and the Dutch bank VSB, angered investors on June 26 by scrapping the interim dividend and announcing plans to sell shares to help strengthen its finances.
‘More Influence’: “We’re buying power in the bank, getting more influence on the decisions that will be made, that’s what savers need in these times,” Dutch Finance Minister Wouter Bos told Dutch public television NOS.
Bos said he couldn’t comment on who'll buy the ABN Amro business.
The collapse of New York-based Lehman Brothers Holdings Inc and the US rescue of American International Group Inc heightened concern about the global financial system and made it costlier for banks to raise funds. Seattle-based Washington Mutual Inc was seized by regulators last week in the biggest US bank failure in history.
Bradford & Bingley was seized by the UK government after the credit crisis shut off funding and competitors refused to buy mortgage loans that customers are struggling to repay.
Banco Santander SA, Spain’s biggest lender, will pay £612 million ($1.1 billion) for Bradford & Bingley's 197 branches and £20 billion of deposits, the bank said today in a statement. Bradford & Bingley shares were cancelled before the market opened in London.
German Rescue: The German government and a group of private banks will provide a ¤35 billion guarantee for Hypo Real Estate to rescue Germany's second-biggest real-estate lender from insolvency. The rescuers will pay the guarantee in two allotments, of ¤14 billion and ¤21 billion, a government official said.
In the US, President George W Bush and congressional leaders said yesterday in Washington that they had reached agreement on the rescue package, which is designed to revive moribund credit markets.
Fortis tried three days ago to assuage investor concerns by stating that its financial position was “solid”, and that it had identified banking and insurance businesses to sell worth as much as ¤10 billion. Fortis said it wouldn't sell assets at fire-sale prices, and didn't have an urgent need for funds.
‘Over-Leveraged’: The remarks, presented in an impromptu press conference by Verwilst and Dierckx, failed to stem the selling. The stock ended the day down 20 percent.
“Markets thought that they were over-leveraged,” European Central Bank Governing Council member Nout Wellink said. “What's happening in the US is having an impact on the rest of the world. At the end of the day Fortis is a good bank,” said Wellink, who also heads the Dutch central bank.
Fortis has fallen 71 per cent this year in Brussels, the second-worst performance among the 69 companies on the Bloomberg Europe Banks and Financial Services Index, cutting the lender's market capitalization to ¤12.2 billion.
The company has about ¤3 billion of bonds maturing this year and needs to refinance an additional ¤7 billion next year, said Ivan Lathouders, an analyst at Banque Degroof SA in Brussels, in a report last week.
EU5 Billion Writedowns
Fortis reported a 49 per cent decline in second-quarter profit on credit-related writedowns on August 4. The banking business’s core Tier I capital ratio, an indicator of a bank's ability to absorb losses, was 7.4 per cent at the end of June, compared with Fortis’s own target of 6 per cent.
The bank, in a statement today, said it expects writedowns of ¤5 billion in the third quarter because of investment writedowns and a change in strategy.
The company's structured credit portfolio, which includes collateralised debt obligations and US mortgage-backed securities, amounted to ¤41.7 billion at the end of June. Fortis said August 4 the pretax impact of the credit market turmoil on its earnings was ¤918 million in the first half.