BNP Paribas to Buy Fortis Units for EU14.5 Billion

BNP Paribas SA, France's biggest bank,
agreed to take control of Fortis in Belgium and Luxembourg for
14.5 billion euros ($19.8 billion), completing a breakup of the
lender after a government rescue failed.
BNP Paribas will pay 9 billion euros in stock and 5.5
billion euros in cash for 75 percent of Fortis Bank Belgium, all
of the Belgian insurance operations, and 67 percent of Fortis's
bank in Luxembourg, the Paris-based bank said in a e-mailed
statement today.
Governments from Brussels to Berlin are racing to shore up
Europe's faltering financial institutions as the global banking
crisis escalates. In Germany, the government and the country's
banks and insurers agreed yesterday on a 50 billion-euro rescue
package for commercial property lender Hypo Real Estate Holding
AG, after an earlier agreement fell apart. European leaders
meeting in Paris this weekend pledged to bail out their own
nations' banks, while stopping short of a regional rescue effort.
``We set out to defend the interests of the bank and its
depositors,'' Belgian Prime Minister Yves Leterme said at a press
briefing in Brussels late yesterday. These measures ``will
provide the means for Fortis Banque to develop.''

Gaining Customers

The Belgian state will have an 11.6 percent stake in BNP
Paribas, and Luxembourg a 1.1 percent holding, after the
purchases are completed. Belgium will appoint two new members to
the French bank's board. Chief Executive Officer Baudouin Prot,
at the press conference last yesterday, said Paris-based BNP will
probably keep the Fortis brand in Belgium.
The French bank will gain about 3.3 million retail clients
in Belgium and Luxembourg, as well as 1,458 branches, including
those in Poland, Turkey and France. BNP Paribas will also acquire
Fortis's Belgian insurance business, and its investment
management operations, private banking, merchant banking and
consumer finance operations, all outside the Netherlands.
``This transaction provides BNP Paribas with the opportunity
to roll out further its integrated banking model in Europe,'' the
company said in the statement. ``BNP Paribas will have two new
domestic markets.''
BNP Paribas has been able to make acquisitions after
suffering smaller subprime losses than rivals such as Deutsche
Bank AG and UBS AG. The French company agreed in June to buy Bank
of America Corp.'s prime brokerage unit, which caters to hedge-
fund customers, for as much as $300 million.

Ringfenced Assets

Under the terms of the deal with Belgium, Fortis will split
off a 10.4 billion-euro portfolio of structured products into a
separate entity. The remaining Fortis holding company will have a
66 percent stake in that portfolio, the Belgian government 24
percent, and BNP Paribas 10 percent. Fortis will also hold onto
its international insurance operations.
Fortis shares will be suspended on Euronext markets,
Belgium's stock market regulator CBFA said in a statement.
Trading will resume as soon as Fortis investors have had the
opportunity to analyze the impact of the agreement between BNP
Paribas and the Belgian government, according to the statement.
Fortis, formerly the largest Belgian financial-services
firm, received an 11.2 billion-euro capital injection from
Belgium, the Netherlands and Luxembourg last week. The Dutch
government took control of Fortis's units in the Netherlands for
16.8 billion euros on Oct. 3 after deciding the initial rescue
didn't go far enough.
Fortis became a casualty of the global financial turmoil
after pouring 24.2 billion euros into the acquisition of ABN Amro
Holding NV assets last year just as the U.S. subprime-mortgage
market collapsed and credit markets froze.

Failed Rescue

In the Sept. 28 rescue that went awry, the three Benelux
governments agreed to put capital into Fortis by purchasing
minority stakes in the banking units in each country. Fortis also
planned to sell ABN Amro's private-banking and Dutch retail
banking units, which hadn't been integrated.
As clients withdrew money and Fortis had trouble obtaining
loans, the Dutch government decided to buy Fortis Bank Nederland
Holding NV, Fortis Insurance Netherlands NV and Fortis Corporate
Insurance NV, and become owner of the company's holding in ABN
Amro.
``Fortis as a whole is a strong company with regards to
capitalization, that's still the case and that also goes for the
Belgian arm,'' Dutch Central Bank Governor Nout Wellink said on
Dutch television yesterday. ``But it has become a plaything of
the broken waters.''
Governments are protecting banks as the financial crisis
that drove Lehman Brothers Holdings Inc. and Seattle-based
Washington Mutual Inc. into bankruptcy widens. Ireland's
government is guaranteeing banks' deposits and debts for two
years, seeking to restore confidence in the country's financial
industry.
Last week, Belgium and France threw Dexia SA a 6.4 billion-
euro lifeline and Britain seized Bradford & Bingley Plc, the
U.K.'s biggest lender to landlords.