Benelux govts rescue Fortis to avert US contagion

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Brussels, September 29: : Benelux governments nationalized parts of banking and insurance group Fortis in a bid to prevent US-style financial contagion engulfing one of Europe's top 20 banks.

After emergency talks with European Central Bank President Jean-Claude Trichet The Belgian, Dutch and Luxembourg governments agreed to inject 11.2 billion euros ($16.4 billion) into the financial group.

Fortis will sell the parts of Dutch bank ABN AMRO it bought last year to Dutch rival ING in a deal expected to be finalized within two weeks, sources familiar with discussions told Reuters. It was the purchase of the ABN assets that precipitated Fortis' trouble.

Belgian Prime Minister Yves Leterme announced the bailout at a news conference on Sunday after a weekend of high drama in the first major bank crisis to hit the euro zone in 13 months of global financial turmoil that began in the United States.

Sources close to the talks said the Benelux governments chose a partial state buyout after investor confidence collapsed last week and two private bidders offered paltry terms.

"We could have not intervened, but the question was whether Fortis would have survived on Monday," Dutch Finance Minister Wouter Bos said.

Each government will take a 49 per cent stake in Fortis banks in their respective countries. Belgium will put in 4.7 billion euros, the Netherlands 4 billion and Luxembourg 2.5 billion, the latter in the form of a convertible loan.

Fortis said in a statement it expected total negative value adjustments of about 5 billion euros after tax in the third quarter. It added its core equity would be around 30 billion euros, resulting in a 9.5 billion euro excess core equity.

Fortis's Tier 1 ratio would be above 9 per cent under Basel I rules and a capital ratio under Basel II of about 13 per cent.

Fortis also said it was facing an impairment from the sale of the parts of Dutch bank ABN AMRO that it acquired for 24 billion euros last year.

The most likely private bidder for Fortis, France's BNP Paribas, pulled out after offering just 1.60 euros per share, compared to Friday's closing price of 5.20, and demanding state guarantees against possible future losses, a source said.

Another source close to the talks said BNP Paribas had offered 2 euros a share and the Dutch ING Group just 1.5. "There was no serious bidder for the intrinsic value of the whole group," the source said.