Belgium mulls fresh bank bailouts

23rd January 2009, Comments 0 comments

Belgian government is weighing up dramatic new measures to prop up the country's ailing banks.

BRUSSELS - With a first round of government bailouts last year failing to calm investors' nerves, Belgian Finance Minister Didier Reynders said the government was considering different options to bolster banks.

After a meeting of the government's inner cabinet, Reynders said the new measures were not being planned with any particular bank in mind even though KBC's shares fell by close to 35 percent at one point on Wednesday.

"It's the financial sector in general (that is targeted ) and I think that we have got to try come up with a coherent plan," he said.

The Belgian government has already spent close to 20 billion euros in September and October bailing out Fortis, Dexia and insurer Ethias after they lost investors' confidence.

KBC also received 3.5 billion euros of state money but the government and the bank's management pitched the move at the time as merely a preventive measure to shore up its capital rather than an emergency rescue.

However, investor confidence in KBC has evaporated in recent days over concerns about the portfolio of toxic debt securities on its books, prompting fears the bank may need fresh capital.

KBC shares, which have shed 65 percent of their value since the start of the year, recovered some of their losses in late trading, but were still down 23 percent at 7.50 euros an hour before closing.

A KBC spokeswoman said that the group would wait until its annual results are published on February 12 before deciding on whether or not to shore up its capital.

"If KBC's annual results show the need to reinforce our capital base ... obviously KBC will consider all the options," she said.

"We are working on the results," she said. "It's clear that they will be influenced by reduced value" of certain assets.

Social Affairs Minister Laurette Onkelinx said that the government would task a steering group to look into the possible options to help the banks.

"On the basis of their report we will eventually take new measures while examining the impact on the public finances," she added.

Reynders raised the possibility of a so-called good-bank, bad-bank solution whereby the bad assets would be hived off into a separate institution leaving banks with sound balance sheets.

"There are several options under consideration," he told RTBF radio earlier Wednesday.

"One idea is to put capital into a certain number of institutions and maybe as well getting the toxic assets out of the institutions to give them better health," he said.

The financial crisis has already caused considerable drama in Belgium and even handed it the unenviable title of being the first country to lose its government due to the turmoil.

The government of ex-prime minister Yves Leterme resigned in December over allegations that an official had sought to influence a court ruling that Fortis was broken up unfairly without consulting minority shareholders.


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