The Dutch, Belgian and Luxembourg governments have agreed to break up Fortis, nearly a week after 49 percent of the fallen banking giant was nationalized.
Critics said the deal was agreed too quickly and secretively
The Dutch government has acquired the bank's financial and insurance operations in the Netherlands for 16.8 billion euros ($23.4 billion), the bank confirmed in a statement Friday evening, Oct. 3.
"After this transaction, Fortis Group entails Fortis Insurance Belgium, Fortis Insurance International and the banking activities excluding Fortis Bank Nederland (Holding)," the statement said.
Divided along national lines
The move, agreed between the governments of the three countries, splits Fortis' former empire into separate Dutch and Luxembourg-Belgian businesses.
On Sunday, the governments of Belgium, Luxembourg and the Netherlands nationalized 49 percent of Fortis.
The Dutch government then took over 49 percent of all Fortis activities in the Netherlands, paying some 4 billion euros. The new deal involves a takeover of all Fortis activities in the Netherlands.
Also, Sunday's planned sale of Dutch ABN Amro bank, taken over by Fortis in 2007 but still operating autonomously within Fortis NV until late 2009, has now been cancelled.
Instead, Dutch central bank (DNB) president Nout Wellink said the integration of ABN Amro and Fortis, as planned following the merger of the two in 2007, would go through.
"The integration will only be easier and more efficient now that the company has become less complicated," Wellink said, adding that the full integration would generate 1 billion euros per year -- money that is badly needed to enhance the bank's liquidity.
Rather than ABN Amro merging into Fortis, it is now expected that Fortis will merge within ABN Amro, still the bigger of the two banks in the Netherlands.
Fortis and ABN Amro combined have some 45,000 employees, who, following the nationalization, have formally become civil servants of the Dutch state.
Speaking at a press conference on Friday, Dutch Prime Minister Jan Peter Balkenende said the new deal was "necessary in order to create stability on the financial markets."
Balkenende said that Fortis was still suffering from liquidity problems after the Sunday's partial nationalization of the bank by the Benelux governments.
Belgian arm suffering most
Dutch Finance Minister Wouter Bos said it was mostly the Belgian part of Fortis that was suffering from continued liquidity problems.
While stability returned to the stock market, several major business clients in Belgium left the bank, Bos said. This meant the bank remained on the brink of collapse in recent days.
By taking out the Dutch part of Fortis, this division would remain safeguarded from further risks, Bos said. He added the deal also generated money, which could solve the liquidity problems of the Belgium Fortis division.
Bos emphasized the full nationalization of all Fortis activities in the Netherlands was a "temporary" measure, and that Fortis would return to private ownership once stability had returned to the markets.
Belgian Prime Minister Yves Leterme said the new deal, negotiated between the Dutch and the Belgian governments Thursday night, was made "in close cooperation with the watchdogs on the financial markets, and in particular taking into account the evolution of the liquidity in the bank systems of the countries involved."
New deal, new questions
In a response to the new deal, Dutch legislator Paul Tang of the Labour Party said the "new agreement raises questions that need to be answered."
Tang, whose party is the second largest in the ruling coalition, also said it was "incredible the government did not mention negotiations about a new deal were going on in recent days."
Legislator Kees Vendrik of the Green Party, said it "did not generate a lot of confidence that the government finds it necessary to repair an agreement worth billions of euros within a week."
Fortis had been in dire need of extra funding due to its participation in the takeover of Dutch ABN Amro bank in 2007, for which it paid some 24 billion euros.