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Amsterdam: Fortis said on Monday it will become a smaller, but financially stable bank after three European governments agreed on a 11.2 billion euro ($16.4 billion) bailout package.
Belgium, the Netherlands and Luxembourg agreed late on Sunday to the cash injection to avert a run on Fortis, taking a 49 per cent 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 more than 20 per cent on Friday to their lowest level in 15 years.
Shares decline
After a brief rally at the open yesterday they fell 20 per cent again, dipping below four euros ($5.78) in Amsterdam - less than a fifth of what they were worth before the ABN buy.
Fortis paid 24 billion euros for its share of ABN in October 2007, and said prior to Sunday's bailout it needed to raise around five billion euros ($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 on Friday, the bank's total market capitalisation was 12.1 billion euros ($17.5 billion) -half what it paid for ABN.
Nout Wellink, the head of the Dutch central bank, said the US financial crisis was partly to blame.
"What is happening in the US 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."
Fortis yesterday said it would be left with excess capital of 9.5 billion euros ($13.8 billion) after its transformation.
However it noted that to the extent ABN Amro's retail operations fetch less than 12 billion euros ($17.4 billion), capital would be depleted.
"I am very happy to have this solvency," Fortis CEO Filip Dierckx said at a news conference in Brussels yesterday.
He declined to set a deadline for the ABN stake sale, and declined comment on speculation ING Groep will be the buyer.
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