VZCZCXRO9879
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHTC #0840/01 2810726
ZNR UUUUU ZZH
P 070726Z OCT 08
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC PRIORITY 2054
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAT/AMCONSUL AMSTERDAM PRIORITY 4026
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 THE HAGUE 000840 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR IMI/OASIA/VATUKORALA, USDOC FOR 
4212/USFCS/MAC/EURA/OWE/DCALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS:  FORTIS BANK NATIONALIZED AS DUTCH 
FINANCIAL MARKETS WEATHER THE STORM 
 
REF: THE HAGUE 814 
 
THE HAGUE 00000840  001.2 OF 003 
 
 
¶1. (U) Summary:  The Dutch government announced October 3 
that it will buy all of Fortis, Dutch operations for EUR 
16.8 billion, including its Dutch insurance activities and 
the Dutch operations of ABN AMRO.  The Dutch government 
decided to effectively nationalize Fortis, in-country 
activities after it became clear last week that the original 
EUR 11.2 billion bail-out would not be sufficient to quell 
investor fears.  The move supersedes the September 29 deal by 
the governments of the Netherlands, Belgium, and Luxembourg 
to invest EUR 11.2 billion to save Fortis.  Dutch public 
reaction has been generally positive, with many praising 
Prime Minister Balkenende,s government ) and Finance 
Minister Bos in particular ) for taking unprecedented but 
necessary action to regain control of ABN AMRO and prevent a 
loss of confidence elsewhere in the financial system.  The 
move highlights the national, rather than EU-wide, approaches 
that European governments have favored thus far as the U.S. 
finanial crisis spills over the Atlantic,s eastern shores. 
End summary. 
 
NATIONALIZATION OF FORTIS 
 
¶2. (U) The Dutch government announced October 3 that it will 
buy all of Fortis, Dutch operations for EUR 16.8 billion, 
including its Dutch insurance activities and the Dutch 
operations of ABN AMRO.  The move supersedes the September 29 
deal by the governments of the Netherlands, Belgium, and 
Luxembourg to invest EUR 11.2 billion in the troubled 
Belgian-Dutch banking and insurance giant (reftel).  Forced 
to find a buyer for Fortis, remaining assets, the 
governments of Belgium and Luxembourg concluded a deal over 
the weekend with BNP Paribas in which the French bank will 
take control of Fortis, operations in those countries.  BNP 
Paribas will acquire 75 percent of Fortis, Belgian 
operations and 66 percent of its Luxembourg operations, with 
the respective governments retaining control of the remaining 
Fortis assets in each country. 
 
¶3. (U) The Dutch government decided to effectively 
nationalize Fortis, in-country activities after it became 
clear last week that the original EUR 11.2 billion bail-out 
would not be sufficient to quell investor fears.  The bank 
continued to face severe liquidity shortages even after the 
announcement, as depositors withdrew their savings and banks 
refused to lend to the troubled institution.  Fortis, share 
price endured a wild ride on Euronext exchanges last week, 
finally closing October 3 down 0.79 percent at EUR 5.41 
before its shares were suspended from trading October 6.  By 
comparison, Fortis shares were worth EUR 36 in October 2007 
when it joined with Royal Bank of Scotland (RBS) and Banco 
Santander of Spain in a EUR 71 billion hostile takeover of 
Dutch bank ABN AMRO; since then, the stock has lost nearly 70 
percent of its value.  Anxious to calm investors, fears and 
shore up confidence across the banking sector, the Dutch 
Ministry of Finance and Central Bank stepped in October 3 to 
purchase all of Fortis, Dutch operations.  The government 
will borrow from capital markets to raise the EUR 16.8 
billion needed for the transaction.  Regarding an exit 
strategy, Finance Minister Wouter Bos gave assurances October 
6 that the Fortis holdings, including ABN AMRO, would be 
re-privatized and sold at a later date once market conditions 
Qre-privatized and sold at a later date once market conditions 
had improved.  According to ministry sources, Bos is looking 
at late 2009 as a likely timeframe for the sale. 
 
¶4. (SBU) The Dutch government was able to conclude this 
latest deal because it had not yet paid the EUR 4.0 billion 
that it had committed to invest in Fortis as part of the 
original EUR 11.2 billion tri-government bailout.  European 
media reported that Belgium and Luxembourg were angered by 
the Netherlands, sudden change of plans, as it forced them 
to scrap the bailout and scramble to find a buyer for 
Fortis, remaining operations.  Dutch Ministry of Finance 
officials told us that the media was exaggerating, noting 
Finance Minister Wouter Bos, regular communication with his 
Belgian counterpart Didier Reynders in the run-up to the 
October 3 announcement of the new Dutch deal. 
 
¶5. (SBU) The Dutch nationalization and subsequent BNP Paribas 
deal have important implications for the Benelux banking 
sector.  In its October 2007 takeover of ABN AMRO with RBS 
and Banco Santander, Fortis acquired ABN AMRO,s retail and 
private banking operations in the Netherlands for EUR 24 
billion amid a national furor that a cornerstone of the Dutch 
 
THE HAGUE 00000840  002.2 OF 003 
 
 
financial sector had been acquired by a foreign consortium. 
With the Dutch government,s takeover, ABN AMRO could 
eventually reemerge as an independent bank, or a buyer such 
as ING (the Dutch banking and insurance leader that had 
expressed interest in purchasing ABN AMRO as Fortis, 
condition worsened in recent months) could step up with an 
offer.  Either of these scenarios would see ABN AMRO returned 
to its Dutch roots ) a development to which the Dutch public 
would react positively and that could help bolster the ruling 
coalition government,s dismal approval ratings.  Meanwhile, 
BNP Paribas, takeover of Fortis, remaining operations makes 
it the largest bank in the eurozone by deposits, while the 
governments of Belgium and Luxembourg are now shareholders in 
the French bank. 
 
DUTCH PUBLIC SUPPORTIVE 
 
¶6. (U) Prime Minister Balkenende and Finance Minister Bos 
spent the past few days reassuring national and international 
investors that the government had purchased the healthiest 
parts of Fortis, that no other Dutch banks are threatened 
with collapse, and that the Dutch financial sector remains 
solid and highly competitive.  By and large, Dutch media and 
public opinion support these assertions.  Although the AEX 
index (the Netherlands, leading stock market index) was off 
by 6.32% at close of business on October 6, many business 
leaders and members of the Dutch parliament praised 
Balkenende,s government ) and Bos in particular ) for 
taking unprecedented but necessary action to regain control 
of ABN AMRO and prevent a loss of confidence elsewhere in the 
financial system. 
 
A NATIONAL, NOT EU, APPROACH 
 
¶7. (U) The nationalization of Fortis, Dutch operations 
highlights the national, rather than EU-wide, approaches that 
European governments have favored thus far as the U.S. 
financial crisis spills over the Atlantic,s eastern shores. 
An October 4 meeting in Paris of the leaders of France, 
Germany, the UK, and Italy produced consensus that European 
governments needed to act in a coordinated manner, and the 
October 6-7 meeting in Luxembourg of EU Finance Ministers is 
expected to do the same.  However, no support has emerged for 
the idea of a centralized EU-wide emergency fund upon which 
failing banks could draw.  Conflicting reports emerged last 
week about whether this was originally a Dutch idea, with 
some media reporting that Prime Minister Balkenende had 
proposed to French President Sarkozy during their October 2 
meeting that EU Member States set aside 3 percent of GDP, for 
a total of EUR 380 billion, for financial emergencies. 
Balkenende,s government subsequently sought to quell the 
rumors, explaining that the Netherlands had never proposed an 
EU emergency fund, but simply urged a coordinated EU approach 
to the crisis.  Germany in particular has opposed the concept 
of an EU-wide fund amid concerns that it would be expected to 
contribute the lion,s share only to bail out other European 
banks in which German taxpayers had little or no investments. 
 Decisions in recent days by Ireland, Germany, and Denmark to 
guarantee the private deposits of their citizens ) in 
addition to the Netherlands, nationalization of Fortis, 
Dutch operations ) highlight the EU Member States, 
continuing preference for EU coordination but national action. 
 
COMMENT 
 
¶8. (SBU) Comment:  The nationalization of Fortis, Dutch 
Q8. (SBU) Comment:  The nationalization of Fortis, Dutch 
operations, although unprecedented in a country that prides 
itself on the protection of free market principles, has been 
well received here.  Few question the necessity of government 
intervention in Fortis to shore up investor confidence and 
prevent possible spillover into other parts of the Dutch 
banking sector.  Meanwhile, leading Dutch institutions such 
as ING and Rabobank remain confident in their balance sheets, 
proudly pointing to their limited exposure to U.S.-backed 
mortgage assets.  Provided the effects of the global 
financial crisis in the Netherlands can be mostly contained 
to Fortis, Prime Minister Balkenende,s government stands to 
gain from its recent market interventions.  The ruling 
coalition government in general ) and Balkenende and Finance 
Minister Bos in particular ) have long suffered in opinion 
polls and have been seen as ineffectual in their efforts to 
push through promised domestic reforms.  Most view the Fortis 
nationalization as a refreshingly decisive and wise step by 
the Balkenende government.  Importantly, the move also 
returns ABN AMRO to Dutch ownership ) a source of pride for 
 
THE HAGUE 00000840  003.2 OF 003 
 
 
many Dutch citizens who resented the foreign takeover of a 
leading Dutch institution last year.  End comment. 
Culbertson