Belgium: Fortis Group Capital Injection, 2008

In June 2008, Fortis Group faced skepticism from the market about the firm’s ability to complete a partial acquisition of ABN AMRO. The deterioration of Fortis’s share price throughout the summer was compounded by a depositor run caused by the onset of the Global Financial Crisis (GFC) in September 2008. The Fortis banking services were systemically important in Belgium (FBB), the Netherlands (FBN), and Luxembourg (FBL), because of the size of the portfolios and the role as a clearing member of domestic and foreign stock exchanges (Basel Committee 2010; EC 2008).

On September 25, 2008, the Banking, Finance, and Insurance Commission (CBFA), the Belgian supervisory authority, informed Fortis that it needed to evaluate options and immediate measures to stem the run. By September 26, the Fortis board of directors concluded that it could not raise sufficient funds in private markets, and that the liquidity deficit would be EUR 30 billion (USD 43 billion)^FAccording to BIS, EUR 1 = USD 1.43 on September 29, 2008. when markets reopened on Monday, September 29, 2008. After crisis talks took place involving representatives from the three state stakeholders as well as the European Central Bank (ECB), authorities announced the capital injection in the evening on September 29, 2008 (EC 2008). 

While talking about the capital injection, the Belgian prime minister stated that the bailout was intended to serve as a message to savers and investors that Fortis would not be allowed to fail (White 2008).

Between September 29 and October 3, 2008, deposit withdrawals continued, and Fortis remained frozen out of interbank markets. This continued lack of market confidence led Dutch authorities to negotiate and announce the full nationalization of FBN, the legal body encompassing the Dutch operations of Fortis Group, on October 3, 2008. This resulted in the uncoupling of FBN from FBB and FBL, and Belgian authorities responded by seeking out a large bank with which to associate Fortis. The only bank that indicated interest was BNP Paribas, and the nationalization and eventual restructuring plan were negotiated in consultation with BNP Paribas. In announcing the new plan on October 5, 2008, Belgian authorities reiterated that the agreement represented their commitment to protect depositors and customers (EC 2008; Belgium 2008; NBB 2009).

On September 29, 2008, the Belgian Central Bank provided emergency liquidity for FBB in the form of overnight advances amounting to about EUR 50 billion. The capital injection and nationalization preceded a restructuring of Fortis Group involving a special purpose vehicle (SPV) that took on risky structured credit assets (EC 2008; EC 2009; Vistesen 2012). For more information, see Key Design Decision No. 11, Restructuring.

The Law of 2 April 1962 established the Federal Participation and Investment Company (SFPI) in Belgium. Article 3 of the law empowered the agency to hold some or all of the shares of a public limited company. The government had no explicit legal authority at the time to impose losses on a failed bank’s equity shareholders or creditors (Belgium 1962).

After receiving a complaint from a minority shareholder on November 20, 2008, a Belgian court ruled that the sale of the Belgian operations of Fortis required shareholder approval. This December 12, 2008, judgment resulted in the suspension of the deal with BNP Paribas, with renegotiations continuing until shareholders approved the deal on April 28, 2009 (EC 2009).

All three affected countries were members of the European Union, thus requiring approval of their intervention measures from the European Commission (EC).

The Belgian government purchased the shares of Fortis Group through Federal Participation and Investment Company (SFPI), which held and administered the shareholding responsibilities of state holdings. SFPI was an independent legal entity created to undertake investment transactions that did not meet economic criteria but held societal value. As such, SFPI had four major mandates:

(a) Stimulate the development and establishment of private enterprises

(b) Promote economic public initiatives

(c) Contribute to the execution of the economic strategy of the State

(d) Give opinions at the request of the Federal Government (SFPI 2009)

The Law of 2 April 1962 established the governance principles for SFPI’s administration of state holdings. The board of directors was responsible for overseeing SFPI and were accountable to the Minister of Finance and the Minister of Economic Affairs. The two agencies, alongside the king, appointed a government commissioner to exercise the state’s oversight. The commissioner had full authority to oversee day-to-day operations and obtain all relevant information and documentation. In the aftermath of the Fortis intervention, these principles were codified in their own charter, called the Governance Charter (SFPI 2014a; Belgium 1962).

After a weekend of crisis talks, authorities from Belgium, the Netherlands, Luxembourg, and the ECB announced the first capital injection agreement on September 29, 2008. Discussing the measures with the Associated Press, the Belgian prime minister stated that the intervention represented the state’s commitment to depositors and customers, which the Dutch prime minister echoed while also emphasizing that the intervention showed a belief among public officials that Fortis was fundamentally solvent. This capital injection did not calm markets, as deposit withdrawals increased between September 29 and October 3, 2008 (EC 2008; White 2008).

Dutch authorities then changed their approach on October 3, 2008, again citing a need to protect depositors while stating that the new approach would contribute to the vital functioning of the Dutch economy. After continued depositor runs, the Dutch government nationalized FBN on October 3, 2008. Regarding this unilateral move, the Dutch prime minister stated that most of the group’s problems were in FBB, and that the Dutch move was intended to insulate Fortis’s Dutch activities. During intervention talks with Luxembourgish authorities, the Belgian prime minister stated his intention to keep Fortis’s Belgian and Luxembourger operations together. He emphasized that authorities were in conversation with several private groups, and that the goal was to send a strong message to savers and investors that Fortis would not be allowed to fail (ENP Newswire 2008; Macmahon 2008; Van de Pol 2008; White 2008).

While talking about the capital injection, the Belgian prime minister stated that the bailout was intended to serve as a message to savers and investors that Fortis would not be allowed to fail (White 2008).

Belgian authorities issued a press release on October 5, 2008, announcing that the government would purchase the remaining shares of Fortis Bank Belgium from Fortis SA/NV for EUR 4.7 billion and that it had agreed to sell 75% of the bank to BNP Paribas. The press release stated that the additional measures aimed to ensure the “lasting solvability” of Fortis Bank Belgium and reiterated the government’s commitment to protecting depositors and customers. Fortis SA/NV issued a press release on October 14, 2008, announcing all of the measures and the new structure of the group in terms of its Dutch and Belgian operations (Fortis 2008; Belgium 2008).

On November 20, 2008, a Fortis shareholder submitted a legal complaint against the intervention measures announced on October 5. The shareholder held the opinion that the price paid by BNP Paribas was significantly below the real value of Fortis at the time, and constituted State Aid to BNP Paribas. After lengthy negotiations, the transaction was renegotiated and finalized on May 12, 2009 (Basel Committee 2010; EC 2008; EC 2009).

The Belgian state paid the full cost of the capital injection, preserving all creditors and equity holders. The restructuring plan resulted in the claims of creditors remaining with the bank during the merger with BNP Paribas or being transferred to a special purpose vehicle called Royal Park Investments. The government had no explicit legal authority at the time to impose losses on a failed bank’s equity shareholders or creditors (EC 2009).

The shareholders of Fortis disagreed with the decisions of the board of directors, appealing for the suspension of the agreement. They argued that the price paid by BNP Paribas was significantly below the real value of FBB at the time of the transaction. The Belgian Court of Appeal on December 12, 2008, suspended the agreement between Belgium and BNP Paribas. This overruling required the shareholders to conduct a formal meeting to decide next steps. BNP Paribas, Fortis, the SFPI, and the Belgian government renegotiated the deal of October 10, 2008, signing a new agreement on February 1, 2009 (EC 2008; EC 2009; SFPI 2009).

However, shareholders again rejected this agreement, requiring another renegotiation in March 2009 (NBB 2009, 31). Fortis officials claimed that these delays caused significant foreign exchange losses (AP 2008). The final agreement between all parties was approved by the shareholders by the end of April 2009 (AP 2008; SFPI 2009; NBB 2009).

The Belgian contribution came in the form of ordinary shares. Authorities first injected EUR 4.7 billion on September 29, 2008, then purchased the remaining shares for EUR 4.7 billion on October 5, 2008. The capital injection and share purchase, totaling EUR 9.4 billion, resulted in an ownership stake of 99.9% for the government in October 2008. In both the September 29 capital injection and October 5 nationalization, authorities purchased the shares at the market price of September 26, 2008, which was EUR 5.20 per share. In the ensuing restructuring plan, the Belgian government also committed to purchase EUR 2 billion in any tier 1 capital instruments if the Tier 1 ratio fell below 9.2% (EC 2008; EC 2009; NBB 2009). 

The original agreement between Belgium, the Netherlands, and Luxembourg called for a EUR 11.2 billion capital injection across the company’s operations in the three countries. In this plan, Belgium contributed EUR 4.7 billion to FBB, the Belgian arm; the Dutch contributed EUR 4 billion to FBN; and Luxembourg contributed EUR 2.5 billion to FBL. However, the decision by the Dutch to fully nationalize FBN canceled its participation in the original agreement. In response, the Belgians contributed another EUR 4.7 billion to acquire a further 50% of Fortis Bank Belgium from Fortis SA/NV, this time purchasing existing shares. This brought the Belgian holding of FBB to 99.9% (Basel Committee 2010; EC 2008; ENP Newswire 2008).

SFPI administered the capital injection as the body responsible for state participation in private enterprises. SFPI funded itself through issuing bonds with a minimum duration of five years. In the event that SFPI was not able to repay its obligations, the Belgian State provided the necessary funding to make up the difference (Belgium 1962).

Substantial deposit withdrawals by institutional clients of Fortis led authorities to determine that an intervention was necessary for the bank. Over the weekend of September 27–29, 2008, crisis talks took place among authorities from the governments and central banks of Belgium, the Netherlands, and Luxembourg, as well as the ECB president. The capital injection by the three countries was announced the evening of September 29, 2008 (EC 2008; Reuters 2009a).

On October 3, 2008, Dutch authorities announced that the Netherlands branch of the group would be fully nationalized. This led to a frantic set of negotiations between Belgian and Luxembourger authorities as to how best to protect their own branches of the group. On October 5, 2008, Belgian officials announced an additional share purchase to nationalize FBB, and the acquisition plan with BNP Paribas (EC 2008; Macmahon 2008; Reuters 2009a).

The capital injections preceded a restructuring process in which FBB’s impaired assets were transferred to a special purpose vehicle (SPV) called Royal Park Investments, with the transactions announced in March 2009 and completed on May 12, 2009 (EC 2009; Royal Park Investments n.d.). A full account of the restructuring of Fortis can be found in the restructuring module (George 2024).

The sitting chairman of the board resigned following the announcement of the Fortis capital injection (Reuters 2009a). Following the capital injections, displeased minority shareholders of Fortis rejected the proposed new chairman, Étienne Davignon, on December 2, 2008 (Reuters 2009a). The board of directors penned the statement in the 2008 annual report, and a new chair of the board, Herman Daems, had been seated by 2009 (Fortis Bank 2009; Fortis Bank 2010; Reuters 2009a).

The initial EUR 4.7 billion capital injection did not contain any conditions and took place with immediate effect in October 2008 (EC 2009; NBB 2009). See Key Design Decision No. 15, Exit Strategy, for more information on the conditions related to the sale of FBB shares to BNP Paribas.

Authorities did not offer any regulatory relief alongside the capital injection.

The change of plans initiated by the Dutch decoupled FBN from FBB and canceled the Dutch participation in the capital injection announced on September 29, 2008. In response, Belgian authorities purchased the remaining existing shares in FBB from Fortis SA/NV, bringing the government’s shareholding to 99.9% on October 6, 2008. On the same day, authorities announced the sale of 75% of their Fortis holding to BNP Paribas, in exchange for 121 million new BNP Paribas shares, with a market value of EUR 8.3 billion. A court decision on December 12, 2008, delayed the transaction, requiring the approval of minority shareholders (EC 2009, 2). Following a prolonged dispute between authorities and shareholders (see Key Design Decision No. 7, Treatment of Creditors and Equity Holders), this transaction came to pass on May 12, 2009 (EC 2008; EC 2009; NBB 2009). The terms of the transaction are detailed in the accompanying restructuring module (George 2024)

On November 13, 2013, the Belgian state sold a 25% stake in BNP Paribas Fortis for EUR 3.3 billion. This transaction resulted in a EUR 900 million capital gain for the Belgian state (SFPI 2014b).