Financial group Fortis underwent a shotgun nationalisation yesterday after emergency talks with European Central Bank President Jean-Claude Trichet to prevent US-style financial contagion engulfing one of Europe's top 20 banks.
The Belgian, Dutch and Luxembourg governments agreed to inject €11.2 billion ($16.4 billion) into the banking and insurance company, which will sell the parts of Dutch bank ABN AMRO that it bought last year, precipitating its troubles.
Fortis is a partner with An Post in Postbank.
Belgian Prime Minister Yves Leterme announced the bailout at a news conference after a weekend of high drama in the first major bank crisis to hit the euro zone in 13 months of global financial turmoil that began in the United States.
Sources close to the talks said the Benelux governments chose a partial state buyout after investor confidence collapsed last week and two private bidders offered paltry terms.
"We could have not intervened, but the question was whether Fortis would have survived on Monday," Dutch Finance Minister Wouter Bos told reporters.
Each government will take a 49 per cent stake in Fortis banks in their respective countries. Belgium will put in €4.7 billion, the Netherlands €4 billion and Luxembourg €2.5 billion, the latter in the form of a convertible loan.
Fortis said in a statement it expected total negative value adjustments of about €5 billion after tax in the third quarter. It added its core equity would be around €30 billion, resulting in a €9.5 billion excess core equity.
Fortis's Tier 1 ratio would be above 9 per cent under Basel I rules and a capital ratio under Basel II of about 13 per cent.
Fortis also said it was facing an impairment from the sale of the parts of Dutch bank ABN AMRO that it acquired for €24 billion last year.
The most likely private bidder for Fortis, France's BNP Paribas, pulled out after offering just €1.60 per share, compared to Friday's closing price of €5.20, and demanding state guarantees against possible future losses, a source said.
Another source close to the talks said BNP Paribas had offered €2 a share and the Dutch ING Group just €1.5. "There was no serious bidder for the intrinsic value of the whole group," the source said.
Trichet, who as ECB head is responsible for safeguarding financial stability in the euro zone, joined Leterme, Bos and the heads of both countries' central banks in the talks.
The presence of the ECB chief - unprecedented in a commercial bank rescue - underlined the seriousness of concern for the integrity of the euro zone's financial system.
Shares in Ping An, China's number two insurer, slid nearly 10 per cent yesterday on fears it will have to absorb larger than expected losses from its 5 per cent stake in Fortis.