BNP Paribas Acquires Fortis Bank, Insurance Assets in Credit Crunch

French bank BNP Paribas agreed to scoop up assets in Belgium and Luxembourg of banking and insurance group Fortis for €14.5 billion ($19.66 billion) to become the Euro zone's biggest deposit bank.The move followed a weekend of frantic talks with authorities in the two countries eager to stem a cash drain on Fortis and Belgian-French bank Dexia, which received a €6.4 billion ($8.68 billion) bailout last week.

BNP Paribas will buy control of Fortis' banking businesses in Belgium and Luxembourg for €9 billion ($12.2 billion) funded through 132.6 million new shares, it said in a statement on Monday.

The French bank, one of the least affected by the crisis in credit derivatives that has brought down rivals on both sides of the Atlantic, will also buy Fortis Insurance Belgium for €5.5 billion ($7.46 billion) in cash, it said in a statement.

The combined bank will have deposits of around €600 billion ($813.82 billion), BNP said in slides on its Web site.

"It's a good deal for BNP Paribas. The price does not seem excessive," Agilis Gestion fund manager Arnaud Scarpaci said.

Shares in BNP Paribas were 3.5 percent lower at €68.86 ($93.40) by 0850 GMT but outperformed a 6.6 percent drop on the DJ Stoxx European bank index. Shares in Fortis were suspended.

BNP stock has fallen around 4 percent since the start of the year, compared to a 32 percent decline in the bank index.

Only a week ago Benelux governments rejected an offer by BNP Paribas as too low. Belgium and Luxembourg returned to the negotiating table with BNP after the Netherlands suddenly decided to fully nationalize the Dutch parts of Fortis.

The Fortis deal is the biggest cross-border rescue since the full force of the credit crisis swept across the Atlantic into Europe last month, upending banks and rattling saver confidence.

Under a share swap announced by Belgian Prime Minister Yves Leterme and BNP Paribas' Chief Executive Baudouin Prot at a late night news conference, BNP will get 75 percent of Fortis Bank Belgium and all the group's Belgian insurance operations.
In exchange Belgium will receive an 11.6 percent stake in BNP through the issue of new shares worth €8.25 billion ($11.2 billion), making it BNP's biggest shareholder.

BNP also agreed to buy two thirds of Fortis Bank Luxembourg in exchange for a smaller 1.1 percent stake for Luxembourg.

"The result of these measures will be that a leading European bank, BNP Paribas, will ensure that Fortis Belgium fulfils the conditions necessary for sustainability and its development," Leterme said in a statement.

BNP said the takeover would boost earnings from the first year, improve its capital ratios and bring €500 million ($678.3 million) of synergies by 2011. BNP's pro forma Tier 1 ratio would improve by some 35 basis points, it said. Restructuring costs would be some €750 million ($1.017 billion).

The acquisition of the banking operations implied a multiple of adjusted tangible book value of 0.7, while the purchase of the life and non-life insurance operations implied a multiple of 1.0 times 2007 life embedded value, BNP added.

The transaction would also see ring-fenced €10.4 billion ($14.11 billion) worth of Fortis' most impaired assets within the structured credit portfolio.

The Belgian and Luxembourg governments will keep blocking minorities of 25 percent and 33 percent respectively in the Fortis banks in their countries.

BNP's Prot said on Sunday that the deal was "a big message of confidence" in Fortis, which had "a formidable business base."

Leterme was forced to hold a second weekend of crisis talks after the Netherlands nationalized Fortis' Dutch operations on Friday for €16.8 billion ($22.8 billion) in a move that caused bitterness between the two Benelux neighbors.

Belgium and Luxembourg took 49 percent stakes in the Fortis banks in their countries last Sunday in a rescue that lasted just five days because depositors and lenders fled.

The Belgian state raised its holding in Fortis Bank Belgium to 99.93 percent on Sunday at a cost of €4.7 billion ($6.38 billion) before selling the 75 percent stake to BNP.

(Editing by David Cowell
Copyright 2008 Reuters).