EU approves additional state aid for Fortis
The European Commission has approved, under EC Treaty state aid rules, additional aid measures from the Belgian and Luxembourg States stemming from amendments of the agreement between Fortis Holding, BNP Paribas, Fortis Bank and the Belgian and Luxemburg authorities. The Commission found that the measures in favour of Fortis Bank and Fortis Holding were limited to the minimum necessary to reach their goal and were compatible with an article of the EC Treaty that allows aid to remedy a serious disturbance in the economy of a Member State.
Competition Commissioner Neelie Kroes stated: "The reasonably calibrated additional aid for Fortis was necessary to allow the sale of the bank to BNP Paribas to proceed. I am confident that Fortis bank will be made viable when combined with BNP Parisbas."
On 3 December 2008, the Commission approved the aid granted by Belgium, Luxembourg and the Netherlands to save Fortis Bank and Fortis Bank Luxembourg (now Banque Générale du Luxembourg), finding that the sale of Fortis Bank to BNP Paribas, in parallel with other measures, would allow the long term viability of the bank to be restored.
On 12 December 2008, the Court of Appeal of Brussels suspended the sale to BNP Paribas and requested a consultation of the shareholders. This resulted in changes to the terms of the transaction in favour of Fortis Holding. Despite these improvements, Fortis shareholders rejected the transaction on 11 February 2009, triggering a renegotiation of the deal between the Belgian and Luxemburg States, Fortis Holding and BNP Paribas.
In the new agreement, dated 12th March 2009, Belgium accepted to assume a larger part of the risk of the investment vehicle which will purchase impaired assets from Fortis Bank, Fortis Holding’s exposure being reduced accordingly. Belgium also offered to provide guarantees on a new €1 billion loan from Fortis Bank to Fortis Holding and on financial liabilities of Fortis Holding towards Fortis Bank.
Lastly, Belgium gave Fortis Holding a call option on the BNP Paribas shares it would acquire. Belgium also accepted to provide Fortis Bank with a ‘mezzanine guarantee’, also called ‘second loss guarantee’, on the structured credit portfolio retained by Fortis Bank. Furthermore, Belgium accepted that the investment vehicle, in which it assumes the largest part of the risk, purchases additional impaired assets from Fortis Bank. Finally, Banque Générale du Luxembourg will be recapitalised by Luxembourg.
Taking account of the very specific and uncommon circumstances of the case, the Commission concluded that the described measures were the minimum necessary to obtain Fortis holding’s shareholders’ approval on the transactions of early October 2008 and to allow the sale of Fortis Bank to BNP Paribas to proceed. The Commission found that Fortis Bank would be made viable through its combination with BNP Paribas.
The Commission also found that the measures relieving Fortis Bank of certain impaired assets were in line with its communication on the treatment of impaired assets. In particular, the Belgian State will purchase or guarantee the structured credits at a price which is well below their real economic value. In other words, a significant part of the losses will be supported by Fortis Bank.
Finally, distortions of competition resulting from the new aid will be kept to the minimum. In particular, the new entity committed not to expand through acquisitions in the Belgian and Luxembourg banking market.