Embattled lender Fortis temporarily 'nationalised' by Dutch government

The Dutch government is buying the core Netherlands businesses of Fortis, the embattled Benelux lender, for €16.8bn (£13.1bn) to prevent instability at the bank threatening the country's economy.

The move came only a few days after the governments of the Netherlands, Belgium and Luxembourg had agreed a part-nationalisation deal to buy minority stakes in Fortis's banking businesses to restore investor confidence in Fortis.

Jan Peter Balkenende, the Dutch prime minister, said yesterday that "further steps proved necessary" to safeguard the Dutch operations. "Most problems lay in the Belgian part of Fortis. We wanted to make sure the Dutch activities wouldn't get into problems," he added.

The effective nationalisation is the latest move by a European government to shore up financial institutions that are vital to the functioning of their financial systems. The takeover will see the Dutch government take control of Fortis's banking and insurance operations in the Netherlands, including the ABN Amro assets it bought for €24bn last year.

The Dutch government said the takeover was temporary and that the operations would be privatised when the financial turbulence has eased. The nationalisation was necessary to ensure "the continued proper functioning of vital financial functions for the Dutch economy", the government said.

The Dutch Government was unhappy about last year's three-way break-up takeover of ABN Amro by Royal Bank of Scotland, Fortis and Santander. In recent weeks, the weight of the ABN deal on Fortis's balance sheet had undermined confidence in the bank, sending its shares down and threatening a run on deposits.

Fortis had agreed to sell the ABN business as part of the previously announced bailout by the Benelux governments. But the most likely bidder, the Netherlands' biggest bank ING, ruled itself out on Monday.

Governments are stepping in to maintain confidence in battered financial institutions after the bankruptcy of Lehman Brothers in the US unleashed further market turbulence. The UK has engineered deals to rescue HBOS and Bradford & Bingley, and the German, French and Belgian governments have bailed out banks. Ireland was forced to offer an unlimited guarantee on deposits at its six biggest banks to maintain confidence.

The Belgian and Luxembourg governments said the Dutch takeover did not affect their purchases of stakes in Fortis.