Governments rescue Fortis but bank woes spread

Fortis, the Belgian-Dutch financial giant and former consortium partner of Royal Bank of Scotland, became the latest victim of heavy exposure to sour mortgages, forcing three European governments to swoop to engineer an emergency rescue yesterday.

But Fortis was only part of the frenzy. Germany yesterday was forced to organise a credit lifeline for blue-chip commercial real estate lender Hypo Real Estate, while Ice- land's government took over Glitnir bank, the country's third-largest bank.

In what was one of the most astonishing days yet in this global financial crisis, the European bail-outs were followed by news that US financial giant Citigroup was acquiring the banking operations of troubled Wachovia, the latest US financial institution to fail or be sold, pulling the deeply troubled company from the brink of collapse.

Less than 24 hours after the UK government seized control of Bradford & Bingley, the Belgian, Dutch and Luxembourg governments announced a partial nationalisation of the troubled Fortis, involving a combined injection of 11.2bn.

Insolvency fears had caused Fortis shares to tumble more than 20% on Friday to their lowest level in 15 years. After a brief rally at the opening yesterday, the company's shares fell 23.7%.

As UK regulators yesterday revealed that B&B's branch network will be sold to Abbey National owner Banco Santander Central Hispano, with the remainder of the group to be nationalised, Fortis became the first major eurozone bank to buckle since US mortgage defaults triggered global financial turmoil in August last year.

Even as US lawmakers were preparing to vote on the massive $700bn rescue of their own banks, Dutch bank ING Group was yesterday in negotiations to acquire Fortis's former ABN Amro assets - which include its near-70% stake in Artemis, the Edinbugh-based fund manager.

An ING spokesman in Amsterdam yesterday told The Herald: "We are looking to see if there is a fit and if a deal can be executed, but I can tell you that so far no agreement has been reached."

Fortis joined Royal Bank and Santander to take over Dutch bank ABN Amro last year before the credit crisis emerged, paying 24bn - a hefty price that has since created havoc on its balance sheet.

In June, Fortis announced it would try to raise 8.3bn to maintain its solvency targets in its bid to absorb the former ABN Amro units.

Artemis, which employs about 45 of its 110 staff in Edinburgh and has about £20bn in funds, yesterday declined to comment on whether there were concerns that Fortis might now be forced to sell off its majority near-70% stake in a fire sale out of desperation.

Fortis put Artemis up for sale before the summer, but there were no takers - even after the bank was said to have cut the asking price and some interest had been stoked.

Artemis's own management was also thought to want to buy out the Fortis stake, but so far attempts to secure funding are understood to have been unsuccessful.

A spokesman for Artemis yesterday said: "Until there is something concrete, I'm afraid I cannot comment."

And a Fortis spokes-woman added: "I can't tell you anything."

Fortis, which is likely to emerge from the crisis a much smaller organisation, now finds itself led by its third chief executive in as many months.

It shed one in July, Jean-Paul Votron, after shareholders reacted angrily to the bank's share-issue plan, and it lost another on Friday when Herman Verwilst stepped down in the share price bloodbath.

Yesterday, Maurice Lippens, the chairman and so-called "father of Fortis" quit the bank. Lippens, a Belgian aristocrat, largely shaped the bank by welding several Belgian, Dutch and Luxembourg banks and insurers into one.

Filip Dierckx, the bank's chief executive of barely three days, yesterday admitted that it had overreached itself with "decisions which were not the best", a reference to its acquisition of the retail banking arm of ABN Amro.

While B&B's failure might have been expected, the liquidity problems and loss of confidence in Fortis have raised concerns that the panic that led to the collapse of Bear Stearns and Lehman Brothers, and the government takeover of Fannie Mae, Freddie Mac and AIG in the US might spread to large European banks, many of which bought financial packages laced with toxic sub-prime mortgages.

Meanwhile, underscoring the continuing vulnerability of the banking sector, financial stocks tumbled across Europe - with ING down almost 20%, Royal Bank of Scotland tumbling by 16.8% and Swiss bank UBS down 12.5%.

Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its US operations, was trading nearly 30.3% on an anonymously sourced story in French daily Le Figaro that claimed the company was planning a rapid capital increase to reassure investors.