Over the weekend, the original rescue plan for Fortis fell apart. The governments of Belgium, Luxembourg and the Netherlands had planned to take 49% stakes in Fortis' banking operations in their own countries, in a deal which would have raised a total of €11.2 billion for the Fortis Group. But instead the Dutch government decided on Friday that it would pay €16.8 billion for all Fortis' holdings in the Netherlands - including the Dutch banking arm and the Dutch insurance activities.
This morning, the fate of the rest of the group was revealed. The Belgian government decided to buy the whole of Fortis Bank in Belgium, for a total of €9.4 billion, and subsequently sell on 75% to BNP Paribas. In a deal that will cost the French bank a total of €9 billion in stock and €5.5 billion in cash, it will also acquire Fortis' Belgian insurance business, its investment management arm (including the former ABN Amro Asset Management business), and its private and merchant banking and consumer finance businesses outside the Netherlands. (The Dutch businesses are, of course, now in the hands of the Dutch government.)
Fortis' structured credit portfolio will be split in two. Of the €33.8 billion in credit derivatives and collateralised loan obligations, €23.4 billion worth of assets "with a lower risk profile" will be retained by BNP Paribas. The remaining €10.4 billion of high-risk assets will be transferred to a special purpose vehicle (SPV), 66% owned by the rump Fortis Group, 24% by the Belgian government and 10% by BNP Paribas. With its Benelux assets sold off, Fortis Group is left with only the SPV holding and its non-Benelux insurance businesses, and much of the cash from the selloffs - totalling €14.43 billion.
Prot said: "The SPV will be managed from a liquidation perspective. The target is to liquidate the portfolio in the best way possible... it will not be kept on a long-term basis." The €23.4 billion, meanwhile, would be managed "with a long-term view" and could be held to maturity, sold off or a combination of the two, he added.
The use of an SPV to hold the most toxic of Fortis' assets evokes comparisons with the structure of Commerzbank's takeover of Dresdner Bank last month. Commerzbank agreed to put €975 million into a "risk shield" SPV which took on €4.9 billion in structured credit and monoline assets.