Belgium planning second banking bailout: finance minister

21st January 2009, Comments 0 comments

Belgium was amongst the first European countries forced into action after the collapse of US investment bank giant Lehman Brothers.

BRUSSELS - Belgian Finance Minister Didier Reynders told local news agency Belga on Tuesday that the government was preparing a second bailout plan for the banking sector.

"We need to prepare ourselves early enough this time to avoid having to save a bank in the space of a night," he said, referring to successive bailouts for Fortis, Dexia and KBC in September and October last year.

"I want in any case to avoid interventions on a case-by-case basis. We need to prepare in advance, all the more so given that we have the experience of the first round," he told the news agency.

He was speaking as shares in KBC extended recent sharp losses, falling nearly 24 percent on Tuesday to 9.75 euros as the banking sector globally went into freefall on growing concerns about its future.

Belgium was amongst the first European countries forced into action after the collapse of US investment bank giant Lehman Brothers in September, which set off a chain reaction meltdown across the financial industry.

KBC shares were trading at around 60 euros (77 dollars) before the Lehman crisis broke.

On Monday, Britain announced another massive bank bailout programme in an effort to get the banks lending again as the economy crumbles in the face of a biting credit crunch.

In the event, the package got a cold welcome in the stockmarket where shares in leading banks tumbled sharply, putting their future even more in doubt as investors bet they would have to be completely taken over by the government.

Reynders noted that the Belgian government's first intervention last year had cost about 20 billion euros but could give no figure for a possible additional move.

"I don't have any idea of what it could be for the second wave. Britain has just spent 100 billion pounds (107 billion euros) to save its banks," he noted.

Dealers said shares in KBC fell so much because investors are worried about its exposure to fragile emerging markets and a need to raise fresh capital.

In an interview with Flemish business daily de Tijd on Tuesday, chief executive Andre Bergen sought to reassure investors about the bank's finances, saying it was not seeking public capital

"At this moment we are not in talks with the Flemish or federal governments (for a cash injection)," he told the newspaper.

He added however that if investors began to worry about the bank's capital levels then the lender would adapt.

The bank's core capital ratio, now 8.2 percent, is likely to fall below 8.0 percent when it publishes fourth-quarter results next month, said Bank Degroof analyst Ivan Lathouders.

This raised the likelihood of a capital hike because the market has expectations of a higher level, he said.

KBC is a leading bank in emerging markets which have been hit hard by the financial crisis, especially in central and eastern Europe, and it is also exposed to the rapidly deteriorating Irish market.


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