29 September 2008   

AMSTERDAM -- Fortis NV said Monday it will become a smaller but financially stable bank after three European governments agreed on a EUR 11.2 billion (USD 16.4 billion) bailout package.

Belgium, the Netherlands and Luxembourg agreed late Sunday to the cash injection to avert a run on Fortis, taking a 49 percent stake in exchange and demanding Fortis resell the share of ABN Amro it bought a year ago - the very decision that brought about all its troubles.

Fortis, with headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium's largest retail bank, while ABN Amro is the largest in the Netherlands.

The bailout orchestrated by the three neighbouring countries and European Central Bank chief Jean-Claude Trichet was meant to restore confidence in the bank before the reopening of markets on Monday after a tumultuous week of imploding share values at Fortis.

Insolvency fears caused the company's shares to tumble to EUR 5.18 (USD 7.56) Friday, their lowest level in 15 years. The shares have lost more than three-fourths of their value since the ABN buy.

Fortis paid EUR 24 billion for its share of ABN in October 2007, and said prior to Sunday's bailout it needed to raise around EUR 5 billion (USD 7.3 billion) in cash to maintain financial ratios as it integrated ABN's Dutch retail operations next year.

Fortis had insisted it could meet that shortfall by selling other assets, but analysts were increasingly sceptical as there are few buyers in the market and many sellers.

Traders too, appeared to think the bank was over-leveraged. Based on its closing share price Friday, the bank's total market capitalization was EUR 12.1 billion (USD 17.5 billion), half what it paid for ABN.

Nout Wellink, the head of the Dutch central bank, said the U.S. financial crisis was partly to blame.

''What is happening in the U.S. has most certainly had an impact on the financial sector in the rest of the world,'' he told reporters. ''Due to rumours, I have to say, Fortis became a bank in a special position.''

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