Fortis could become the credit crunch's first eurozone victim
The credit crunch seems poised to claim its first major eurozone victim this week. The Belgian-Dutch financial group Fortis, which specialises in banking and insurance, may sell itself or its ABN AMRO Dutch banking subsidiary. Its fate is being closely monitored by European Union officials, too.
The finance ministers and central banks in Belgium and the Netherlands have provided reassurances on the integrity of the Benelux financial system. The Belgian government will guarantee all retail deposits according to one of its leading ministers. Marianne Thyssen, leader of the Christian Democrats – one of the partners in Belgium's governing coalition – said: "The current government stands behind Fortis, we guarantee that savings accounts are insured for 100 per cent." Under Belgian law, only the first €20,000 (£16,000) in bank accounts are insured. In the case of insurance polices issued by Fortis subsidiaries in the UK, these should, if necessary, be covered by the Financial Services Compensation Scheme. The FSCS says that if a life insurance firm were to become insolvent FSCS can "try to arrange continuity of insurance for eligible policyholders by seeking to transfer ongoing policies to another insurance firm". It will also provide compensation to protected policyholders at 100 per cent of the first £2,000 and 90 per cent of the remainder of the value (in a liquidation) of a claim or policy.
Officials from central banks, supervisors and government departments also converged in Amsterdam yesterday for a meeting of the Financial Stability Forum (FSF), chaired by Bank of Italy chairman Mario Draghi. The FSF is the international body charged with co-ordinating the regulatory activities o f the developed world's central banks and financial supervisors. The FSF said it was bringing forward a briefing by Mr Draghi, a member of the European Central Bank's Governing Council, to today instead of Tuesday.
Although one of the first victims of the crunch a year ago was the small regional German bank, IKB Sachsen, and the Swiss-based giant UBS has weathered huge writedowns of losses, Fortis's problems, as a major retail institution, are of a different kind. Unlike many banks that have suffered damage form exposure to the US property market, Fortis's difficulties seem to stem principally from its purchase last year of ABN AMRO with partners Royal Bank of Scotland and Spain's Santander in a €70bn deal just as the credit crisis struck and slashed the value of ABN AMRO's assets even as the ink was drying on the agreement. Fortis's share of the debt for the purchase was €24bn, a burden few think it can carry for much longer. In the UK, parallel criticism of the deal has also been aimed at RBS, and damaged it's share price. RBS's ambitious chairman, Sir Fred Goodwin, has been a particular focus of discontent.
Fortis's fate will soon be sealed. Its shares suffered a near-collapse last week, falling one-fifth on Friday, while the insurance premiums commanded by its debt has also reached record levels in the credit default swaps market.
BNP Paribas is said to be a potential buyer for all of Fortis or just the ABN part, while Dutch rivals ING or Rabobank may also be keen on acquiring Fortis's presumably lucrative private banking business. BNP and ING have appointed investment advisers.
Fortis alarmed the markets in July by announcing a share issue, cancelling its dividend and parting company with chief executive Jean-Paul Votron. Last week the company changed its boss again, and picked Filip Dierckx to replace Herman Verwilst as chief executive. The move was aimed at reassuring investors concerned that a plan to raise €8.3bn would force Fortis to sell assets at knock-down prices.
The group is Belgium's largest private sector employer and over 1.5 million households, roughly half the country, bank with the group.
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