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Fortis on life support after 'Dutch revenge'

Latest update : 2008-10-07

The governments of Belgium and Luxembourg are scrambling to find a solution for the troubled financial group Fortis after the European Commission approved the nationalisation of its Netherlands-based operations by Dutch authorities.

BRUSSELS - The salvage of troubled financial group Fortis began as a model of brotherly cooperation among the Benelux countries at the heart of Europe, but it is fast turning into an acrimonious split.

A week ago, the Belgian, Dutch and Luxembourg governments agreed to rescue the cross-border banking and financial services company by injecting 11.2 billion euros ($15.52 billion) in a partial nationalisation of Fortis banks in the three countries.

The solution held for just five days and the Netherlands nationalised most of the group's Dutch units for 16.8 billion euros on Friday after depositors and lenders fled, leaving the Belgians and Luxembourgers groping for a solution for the rump.

Angry Belgian editorialists denounced "Dutch revenge", "Hold-up by Dutch authorities" and "How the Netherlands bought out Belgium for a pittance".

When Fortis joined forces with Royal Bank of Scotland and Spain's Banco Santander to buy ailing Dutch bank ABN AMRO last year, it sparked a rare burst of national pride in this linguistically divided country.

For once, smaller Belgium -- chronically split between its majority Dutch-speakers and minority French-speakers -- appeared to have the upper hand over the Netherlands, often resented as an overbearing northern neighbour.

That pride now lies in tatters as Prime Minister Yves Leterme's government struggles to save what remains of Belgium's biggest private sector employer, with millions of depositors and tens of thousands of jobs at stake.


The Belgian business daily De Tijd captured a mood of anger and humiliation in an editorial, saying: "The Dutch snuck away on Friday without taking any shred of responsibility for the failed investments of Fortis. The English have the appropriate expression for it: they're laughing all the way to the bank."

The chairman of the VFB Flemish shareholders federation, Paul Huybrechts, felt the Dutch had themselves a great deal.

"The Dutch have really enriched themselves," he told Reuters at the sidelines of a VFB conference on Saturday.

Dutch Finance Minister Wouter Bos fanned Belgian resentment by telling a news conference: "Many of the problems were hidden in the Belgian part of the Fortis group."

The Dutch had saved "healthy parts of the bank from possible contamination by parts that were less healthy", he said.

That followed comments by Bos in the Dutch parliament last week that if he had known everything he now knew about Fortis' balance sheet, he might have taken a different decision.

Dutch concern centred on Scaldis, an off-balance-sheet securitisation vehicle set up by Fortis in the Channel Islands in 1999 to enable clients to raise short-term funds quickly and anonymously on top-grade terms, according to Fortis' website.

Leterme hit back in a Belgian television interview, saying that while there were problems on the Belgian side of the group, "there were problems on the Dutch side too".

The Belgian central bank had been obliged to make available a 45 billion euro credit line last week to keep Fortis' Dutch operations going, the prime minister said.

An authoritative source in Fortis management, speaking on condition of anonymity, said the Dutch never paid their part of the capital injection agreed by the Benelux governments.

"The Belgians and Luxembourgers paid up on Monday morning but the Dutch never paid their 4 billion because there were still discussions about the agreement and the shareholders' agreement was never signed," the source told Reuters.

The Dutch Finance Ministry and the Dutch Central Bank declined comment on whether the 4 billion was ever paid.

Fortis bought its share of ABN at the top of the market, just as the sub-prime crisis in the United States was triggering a global credit crunch. The need for capital to pay for its 24.2 billion euro ($35.40 billion) purchase brought the bank to its current plight.

Fortis's history pre-dates the creation of Belgium in 1831.

A precursor, the Algemeene Nederlandsche Maatschappij ter Begunstiging van de Volksvlijt, was founded in 1822 during the brief 15-year unification of Belgium and the Netherlands after the defeat of Napoleon. It played a key role in financing the 19th century industrialisation of the Low Countries.

The modern group was born in a first cross-border financial merger in 1990 to become one of Europe's top 20 financial groups combining insurance, banking and asset management.

Date created : 2008-10-05