Belgium, BNP Paribas and stricken financial group Fortis on Friday agreed revisions to the latter's carve-up in a bid to end a revolt by Fortis investors over the initial terms of the deal. The Belgian government hopes the modifications will end the Fortis debacle, which led to the collapse of the previous government last month.
BNP Paribas shares were up 1.3 percent at 29.86 euros at 1535 GMT, compared with a 0.7 percent drop of the DJ Stoxx European banking index. Trading in Fortis shares was suspended. France's BNP Paribas agreed last October to buy 75 percent of Fortis Bank Belgium and all of the Belgian insurance, leaving Fortis with just its international insurance operations and a majority stake in a portfolio of structured credit products.
But Fortis shareholders successfully challenged that transaction, along with the Netherlands' purchase of all of Fortis's Dutch operations. A Brussels appeals court ordered that shareholders be given a say. Under the new terms, listed Fortis Holding would retain a 90 percent stake in the Belgian insurance business with BNP Paribas acquiring 10 percent for 550 million euros ($719.4 million).
Fortis Holding's interest in structured credit products, generally referred to as toxic assets, would be limited to 1 billion euros. The Belgian state would provide a guarantee of some 5 billion euros. Fortis Holding would also no longer have to pay 2.35 billion euros to cover perpetual convertible loans, known as CASHES.
Finally, Fortis Holding would have the right to any profit the Belgian state made on its holding of BNP Paribas shares. Belgium received the shares at 68 euros each when it sold a majority stake in Fortis Bank to BNP. Fortis's board had accepted the terms, pending approval from its shareholders, who are set to meet in Brussels on February 11. The Belgian holding said the new terms would improve its cash position by 700 million euros.
"I think that what has been improved is a significant improvement to what was on the table initially," Fortis Holding acting chairman Jan-Michiel Hessels told a news conference. He added that he expected Fortis shareholders to approve the new deal in February. Analysts said it appeared a little more likely that the deal would now be approved. Mischael Modrikamen, the lawyer that brought the case on behalf of 2,300 shareholders, said he would still advise them to vote against the deal.
"It's certainly a step in the right direction, but it's not sufficient," he said. Paul Huybrechts, the head of the VFB Flemish shareholders association, said it was positive that Fortis would keep its insurance business and saw the financial aspects as neutral, but added there was a risk shareholders would vote against the sale of the Dutch businesses to the Netherlands.
For BNP, set to become the euro zone's largest deposit bank, the revisions offered the prospect of boosting its tier one ratio by up to 50 basis points because of lower goodwill paid for the insurance business, analysts commented. Belgian Prime Minister Herman Van Rompuy told reporters he believed the agenda for the shareholder meeting could still be changed. The new terms follow to some extent the recommendations set by a panel of experts appointed by the Brussels appeals court.
"It responds to the different suggestions made by the experts to improve the value of Fortis," Finance Minister Didier Reynders told a new conference. "The money issues are the most difficult ... We have lowered the state's investment, but instead accepted higher guarantees."
The Belgian state's investment would be reduced to 11.4 billion euros from an original 14.9 billion. Fortis's break-up early in October followed an 11.2 billion euro cash injection a week earlier that failed to calm nerves. Fortis investors saw their shares drop to below 1 euros, compared with over 5 euros before the carve-up and almost 30 euros in April 2007, before the group launched its ill-fated joint purchase of Dutch rival ABN Amro. Fortis shares closed at 1.55 euros on Thursday.
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