VZCZCXRO4018
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #0814/01 2731600
ZNR UUUUU ZZH
R 291600Z SEP 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 2022
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAT/AMCONSUL AMSTERDAM 4024
RUEATRS/DEPT OF TREASURY WASH DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 THE HAGUE 000814 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR IMI/OASIA/VATUKORALA 
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV NL
SUBJECT: BAIL-OUT OF DUTCH-BELGIAN BANKING GIANT FORTIS 
 
THE HAGUE 00000814  001.2 OF 002 
 
 
¶1. (SBU) Summary:  Following a weekend of intense 
negotiations, Fortis Bank announced September 29 that the 
governments of the Netherlands, Belgium, and Luxembourg will 
invest a total of EUR 11.2 billion in return for a 49 percent 
share in the bank's institutions in each country.  While the 
U.S. financial crisis - including the presence of U.S. 
mortgage-backed securities on Fortis' books and a global loss 
of consumer confidence - precipitated the current crisis, 
Fortis already was in trouble after its overpriced purchase 
of Dutch bank ABN AMRO in October 2007.  Dutch experts are 
watching closely for signs of other troubled companies, but 
for now they remain hopeful that the Fortis bailout will not 
undermine other financial institutions or consumer confidence 
in the relatively healthy Dutch economy.  End summary. 
 
¶2. (U) Fortis Bank, the Belgian-Dutch banking and insurance 
giant, will receive a capital injection of EUR 11.2 billion 
from the governments of the Netherlands, Belgium, and 
Luxembourg to prevent its impending collapse.  In a deal 
brokered in the early morning hours of September 29, each 
government will receive a 49 percent ownership share in 
Fortis' operations in that country.  The Dutch government 
will invest EUR 4.0 billion for a 49 percent share of Fortis 
Bank Nederland; the Belgian government will invest EUR 4.7 
billion for a stake in Fortis Bank NV/SA Belgium; and the 
Luxembourg government will invest EUR 2.5 billion in Fortis 
Banque Luxembourg SA.  While details of the deal are still 
pending, Dutch Finance Minister Wouter Bos said the Dutch 
government will hold the Fortis shares until it can sell them 
at a more opportune time in the future.  The state-sponsored 
rescue followed intense negotiations over the weekend of 
concerned finance ministers, central bank officials, and 
banking executives to shore up confidence in the embattled 
banking giant.  Dutch stock market reaction was highly 
volatile on September 29; Fortis shares were up 14 percent in 
the morning but down 13 percent in the afternoon before close 
of business. 
 
¶3. (U) The capital injection will give Fortis time to sell 
off its units in a controlled manner, including its interests 
in Dutch bank ABN AMRO.   Fortis joined with Royal Bank of 
Scotland and Banco Santander of Spain in October 2007 to 
break up ABN AMRO; Fortis acquired the Dutch bank's retail 
and private banking operations in the Netherlands for EUR 4 
billion amid a national furor that a cornerstone of the Dutch 
financial sector had been acquired by a foreign consortium. 
Dutch insurance giant ING, which was rumored to be interested 
in purchasing Fortis' ABN AMRO holdings if it could overcome 
EU competition concerns, has again expressed interest in 
buying the Dutch entity, but it had made no formal offer as 
of September 29.  As opposed to the hefty price that Fortis 
paid for its ABN AMRO stake in 2007, some Dutch media report 
that Fortis could accept as little as EUR 10 billion this 
week for its ABN AMRO holdings. 
 
¶4. (U) The collapse of Fortis' share price - from a high of 
almost EUR 30 in October 2007 to EUR 5.18 on September 26 - 
prompted Dutch, Belgian, and Luxembourg governments to rescue 
Fortis before markets re-opened on September 29.  Bankers and 
policy makers feared that failure to shore up Fortis could 
lead to a broader loss of confidence in other European 
financial institutions.  Struggling with lagging investor 
Qfinancial institutions.  Struggling with lagging investor 
confidence and a steady drop in share price throughout 2008, 
Fortis' plan had been to sell its non-core activities, but it 
could not find buyers in the short term.  French bank BNP 
Paribas was also considering a wholesale purchase of Fortis, 
but no deal could be reached.  Now that Fortis has been 
buttressed by government capital, potential buyers may come 
forth to take advantage of what amounts to a fire sale of 
Fortis assets at bargain prices.  BNP Paribas, ING and others 
reportedly are considering purchasing some or all of Fortis' 
holdings, although firm offers have yet to be announced. 
 
¶5. (U) While many blame the spillover of the U.S. financial 
crisis into European markets for Fortis' demise, other 
factors played a major role.  Perhaps the key reason was the 
bloated price of EUR 24 billion that Fortis paid in October 
2007 for its ABN AMRO acquisitions.  Fortis agreed to the 
overpriced deal because it transformed the then-medium-sized 
Belgian-Dutch firm into one of the largest financial 
institutions in northern Europe.  Fortis made this purchase 
just as the extent of the U.S. financial crisis began to 
surface.  Concerns about Fortis absorbing ABN AMRO's assets 
while simultaneously grappling with a large portfolio of U.S. 
mortgage-backed securities undermined investor confidence and 
set Fortis' share price on a steady decline throughout 2008. 
 
THE HAGUE 00000814  002.2 OF 002 
 
 
Fortis announced losses due to its sub-prime investments of 
EUR 2.7 billion in 2007, followed by additional write-downs 
of EUR 380 million in the first quarter of 2008 and EUR 362 
million in the second quarter.  Several subsequent 
developments led to rumors that the bank faced a serious 
liquidity shortage, including Fortis' announcement in June of 
the cancellation of its interim shareholder dividend. 
Meanwhile, Fortis had sold its ABN AMRO Asset Management 
division to Chinese bank Ping An in March 2008 for EUR 2.15 
billion, but Fortis has yet to receive that payment due to 
the reported reluctance of the Chinese government to allow 
the completion of the sale.  In August 2008, Rabobank 
announced that many former Fortis customers were switching 
their savings accounts to Rabobank due to lack of confidence 
in Fortis' liquidity.  These developments have produced a 
steady decline over the past few months in Fortis' share 
price.  Policy makers decided to intervene over the weekend 
to prevent what they saw as Fortis' impending collapse when 
markets opened on September 29. 
 
¶6. (SBU) Comment:  Fortis is the largest Benelux financial 
institution thus far to be hit by the same crisis of 
confidence that has undermined leading U.S. financial 
institutions.  While the U.S. financial crisis - including 
the presence of U.S. mortgage-backed securities on Fortis' 
books and a global loss of consumer confidence - precipitated 
the current crisis, Fortis already was in trouble after its 
overpriced purchase last year of ABN AMRO.  Public debate in 
the Netherlands, as in the United States, already is underway 
about whether governments should use taxpayer money to bail 
out irresponsible financial institutions.  Nonetheless, 
Embassy contacts at the Dutch Central Bank, Rabobank, and ING 
tell us that policy makers had little choice but to intervene 
to prevent Fortis' collapse and the likely spillover into 
other Dutch financial institutions it could have produced. 
Rabobank and ING assert that their balance sheets are 
healthy, that they carry few U.S. mortgage-backed assets, and 
that they are in no danger of succumbing to Fortis' fate. 
(Note:  Further reporting on the health of the Dutch 
financial sector will follow septel.  End note.)  Dutch 
financial leaders and policy makers are looking closely for 
further signs of financial crisis, but for now they are 
hopeful that the Fortis bailout will not undermine other 
financial institutions or consumer confidence in the 
relatively healthy Dutch economy.  End comment. 
 
Culbertson