BELGIUM: SHAREHOLDERS SAY 'NO' TO FORTIS BANK

UNCLAS SECTION 01 OF 02 BRUSSELS 000204

SENSITIVE
SIPDIS

STATE FOR EEB/OMA, EUR/ERA, EUR/UBI
TREASURY FOR OASIA/OIC: ATUKORALIA
USDOC FOR 4212/ITA/MCA/EUR/OECA/WNE/JLEVINE

E.O. 12958: N/A
TAGS: EFIN ECON BE
SUBJECT: BELGIUM: SHAREHOLDERS SAY 'NO' TO FORTIS BANK
SALE; GOVERNMENT HOLDING THE BAG, FOR NOW

REF: A. A) 08 BRUSSELS 1675

B. B) 08 BRUSSELS 1599

SUMMARY
--------------


1. (SBU) Shareholders of Fortis Holding on February 12
narrowly rejected the Government of Belgium's (GOB) October
2008 purchase of Fortis Bank, once Belgium's largest and
still its largest private employer (20,000),putting at risk
a proposed sale of 75 percent of Fortis Bank to the French
bank BNP Paribas. A majority of shareholders also voted 'No'
to the October 2008 sale of Fortis Bank's Dutch assets to the
Dutch government, although that deal, unlike the BNP one, has
already been consummated. Prime Minister Herman Van Rompuy
tried to reassure shareholders, depositors and employees
during a February 12 press conference, where he stressed that
the GOB is still the owner of Fortis Bank. The PM also
supported Finance Minister Didier Reynders, who came under
fierce criticism from nearly all parts of the Belgian press
following the No vote. Now the Government, which before the
vote had stressed that there was no 'Plan B' if the
shareholders did not give a thumbs-up, must try to figure out
what to do next. BNP Paribas, for its part, said its offer
from October stands until February 28, while it is unclear
what the No vote means for the already-completed sale of
Fortis' Dutch assets to the Government of the Netherlands.
End summary.

CONTENTIOUS SHAREHOLDERS BUSHWHACK GOB'S PLANS
-------------- -


2. (U) Approximately 7,000 shareholders at a February 11
general assembly of Fortis Holding, the one-time owner of
Belgium's one-time largest bank, Fortis Bank, rejected by the
narrowest of margins (0.04 percent) the Government of
Belgium's (GOB) effective takeover of Fortis Bank in October
2008, when the GOB acquired nearly 100 percent of Fortis Bank
and at the same time brokered the planned sale of 75 percent
of Fortis Bank's non-Dutch assets to French banking giant BNP
Paribas. A December ruling by the Belgian Court of Appeals
granted shareholders of Fortis Holding the right to vote on
the GOB's decisions to sell Fortis Bank's assets to BNP
Paribas and the Dutch Government; the GOB and Fortis
management had hoped that shareholders would ultimately
approve their actions so that the BNP Paribas transaction
could go through. Defiant shareholders also nixed the
October sale of Fortis's Dutch assets to the Government of
the Netherlands; that deal has already been completed,
however, so it is unclear what the No vote will mean for that
transaction, for although some commentators following the
vote said the GOB must now renegotiate with the Dutch
governemnt, the Belgian press also has reported that the
Dutch Government has already said it will not renegotiate
that deal.


3. (SBU) The 'No' vote rejecting the Fortis Bank sale to
the GOB obviated a scheduled third vote by shareholders on
whether to approve the sale to Paribas; that deal is now
imperiled. According to a statement on Paribas' website,
only the bank's October 2008 offer remains on the table until
February 28, thus implicitly putting to nought a renegotiated
offer reached with the new Van Rompuy government in January
2009 that many Belgian analysts said had improved the deal
for Belgium. Prime Minister Van Rompuy stated at a February
12 news conference that the GOB will resume discussions with
the French bank. Leading up to the February 11 vote, Belgian
ministers had reminded shareholders that the GOB had no Plan
B, in hopes of getting them to vote yes. But a key
shareholder, Chinese company Ping An, with 5 percent of the
shares, had announced over the weekend that it would vote No,
and many observers believe that its No vote was critical in
yesterday's outcome. Key Belgian cabinet members met with
Prime Minister Van Rompuy in the evening of February 11 after
the 'No' vote was announced to consider next steps, but to
date the Government has not said what its next steps would
be, limiting its statements to assurances to depositors and
employees that Fortis Bank remains in GOB hands, is stable
and open for business as usual, and that it will now consider
its options.


4. (U) The No vote dominated the Belgian press on February
12, with observers (especially from the Flemish press)
particularly singling out Finance Minister Didier Reynders in

BRUSSELS 00000204 002 OF 002


their criticism of the Government's handling of the Fortis
'affair' from the beginning. Reynders, for his part, has
limited his public remarks to mostly saying that the No vote
"complicates the task" of sorting out what will become of
Fortis Bank, that the GOB is in discussions with BNP Paribas,
and that no one should expect a quick decision in the next
few days. Reynders also told the press that the Government
was not at fault, blaming management at Fortis Holding for
poor decisions that forced the GOB to step in and take
control of Fortis Bank last October, and he also implicitly
criticized foreign shareholders by saying that a strong
majority of "Belgian" shareholders voted in favor of the
Fortis deal.


5. (SBU) While many newspaper stories on February 12
appeared to treat the No vote as a victory of sorts for the
shareholders, others pointed out that the No vote in fact
only complicates matters for the Government, which has few
options: letting Fortis attempt to work out its own deal,
pumping more cash into the bank, or trying to renegotiate the
terms of the October deal with the Government of the
Netherlands and BNP Paribas. The first option does not
appear probable, since it was the threat of a failure of the
heavily-indebted Fortis that led the GOB to act so
precipitously in the first place last October to try to save
Fortis. The second option is complicated by the GOB's
already-heavy debt load but may end up being the only choice
if the GOB fails to attract other interested buyers. And the
third option is hard to envision, since BNP Paribas has
already said it will go forward with the deal only on its
original terms, and the Government of the Netherlands has
already completed its takeover of Fortis' Dutch holdings.
Even if the GOB could get those two parties to sit down, it
is not in a strong position to demand a better deal.

COMMENT
--------------


6. (SBU) While the GOB is telling all who will listen that
the No vote was not a defeat for the Government, it is hard
to conclude otherwise. Now the GOB, already run by a fragile
coalition, will have to continue to devote much of its
attention as well as political (and likely financial)
resources to resolving what to do with Fortis. And with the
country's central bank forecasting a fall of Gross Domestic
Product (GDP) of 1.9 percent in 2009 and an increase of the
country's debt/GDP ratio to well over 90 percent due to its
attempts to stem the larger economic crisis, the financial
resources available for the GOB to act are limited, at best.
One financial sector observor told the Embassy that the
shareholders' No vote unfortunately mainly created much
uncertainty for the Government, which now must try to calm
potential investors, depositors and the company's 20,000
employees, and was not a good thing for shareholders. Not
surprisingly, shares of Fortis fell by double digits in
trading on February 12.

BUSH
.