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Document Type

Case Study

Case Series

Ad hoc Capital Injection

Abstract

In September 2008, in the wake of the freezing of credit markets caused by the Global Financial Crisis (GFC), Fortis Group, a financial conglomerate incorporated in Belgium and the Netherlands, faced depositor runs and share price deterioration. These negative consequences were a result of its exposures to US subprime mortgage-related assets and other losses from its 2007 acquisition of ABN AMRO, a large Dutch bank. Over the weekend of September 27–29, authorities from Belgium, the Netherlands, Luxembourg, and the European Central Bank (ECB) held emergency talks, resulting in the announcement of EUR 11.2 billion (USD 14.3 billion) in capital injections on September 29, 2008. The injections included EUR 4.7 billion from the Belgian government for 49% of Fortis Bank SA/NV, also known as Fortis Bank Belgium (FBB); EUR 4 billion from the Dutch government for Fortis Bank Netherlands (FBN), which excluded the Dutch parts of ABN AMRO owned by Fortis; and a EUR 2.5 billion loan, convertible into equity, from the Luxembourg government for 49% of Fortis Bank Luxembourg. Dutch authorities were unable to find a buyer for the ABN AMRO assets, however. On October 3, Dutch authorities announced a full nationalization of all of Fortis’s Dutch assets (FBN), including the ABN AMRO assets, at a cost of EUR 16.8 billion. Belgian authorities immediately sought a buyer for FBB. On October 5, the government agreed to purchase an additional EUR 4.7 billion of FBB shares from Fortis SA/NV, the bank’s holding company, bringing its investment in the bank to EUR 9.4 billion for a 99% stake. Belgian authorities then announced plans to sell the bank to BNP Paribas, a large French bank. The government had no legal authority at the time to impose losses on a failed bank’s equity shareholders or creditors. After extensive renegotiation initiated by minority shareholders, authorities finalized a deal on May 12, 2009, in which the Belgian state retained 25% of Fortis Group while BNP Paribas purchased 75% using its own shares as payment. The government has since sold much of its stake in FBB. As of October 2023, it still held 5.1% of the company, which is valued at about EUR 3.4 billion.

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