EU clears BNP Paribas to buy most of Fortis bank, but must sell credit card unit

By AOIFE WHITE , Associated Press

Last update: December 3, 2008 - 12:28 PM


BRUSSELS, Belgium - BNP Paribas won European Union approval to buy the Belgian and Luxembourg banking arms of troubled lender Fortis on Wednesday — but has agreed to sell off a credit card unit to eliminate antitrust problems.

EU regulators also cleared government bailouts for Fortis given by Belgium, the Netherlands and Luxembourg in September and October.

French bank BNP Paribas became the largest holder of private savings in the 15-nation euro area when it snapped up most of Fortis at a knockdown price in October, a week after a state rescue failed to keep the bank afloat.

The European Commission said the purchase could go through as long as BNP Paribas sells off BNP Paribas Personal Finance Belgium and avoids becoming by far the largest issuer or credit cards in Belgium and the Luxembourg.

Regulators said customers would otherwise have a limited choice of credit card providers.

The Commission has also waved through two state rescues for Fortis.

It cleared the first capital injection on Sept. 29 from Belgium, the Netherlands and Luxembourg. The bailout was a failure and did not assure investors about the bank's stability, causing the Dutch government to take over Fortis' operations in the Netherlands.

The second rescue on Oct. 5 saw Belgium and Luxembourg take over most of the business and sell the majority off to BNP Paribas.

EU officials said the bailouts were state subsidies but could be allowed because they were needed to save the bank and "remedy a threat to the financial system."

The Commission said it had not cleared the Dutch government's purchase of Fortis' banking operations and would make a separate decision later. It did approve the related takeover of Fortis' insurance business in the Netherlands.

EU regulatory clearance may not be the final hurdle for the BNP Paribas deal, which Fortis shareholders claim is unfair because they were never consulted. A Belgian court has ordered a legal expert to examine if the price paid was justified. Some shareholders also want to re-negotiate the deal.

The European Commission, however, said that BNP Paribas had paid a market price for the business and had not got a special deal from the Belgian and Luxembourg governments.

BNP Paribas paid euro14.5 billion (US$18.3 billion) for the package, which gives it three-quarters of Belgium's largest bank, all of Fortis' Belgian insurance business and two-thirds of the Fortis' Luxembourg operations. The Belgian and Luxembourg governments each keep a stake in local units.

The French bank avoided taking on most of Fortis' "toxic assets" — credit derivatives and collateral debt obligations now valued at euro10.4 billion (US$13 billion). It has a 10 percent stake in them with 24 percent held by the Belgian state and the rest by what remains of Fortis.

Without its core banking business, Fortis is now a small international insurer with a share price of just under euro1 — well below the euro30 it was trading at before it launched an ambitious takeover for part of Dutch rival ABN Amro.

It ran into trouble in September when credit markets froze over worries that it could not raise the money to pay the euro24 billion (US$30 billion) price tag and rumors over the worth of its investments.