BELGIUM: PETERCAM CHIEF ECONOMIST SPEAKS OUT ON

UNCLAS BRUSSELS 000249 SIPDIS STATE FOR EEB/OMA, EUR/ERA, EUR/UBI TREASURY FOR OASIA/OIC ATUKORALA E.O. 12958: N/A TAGS: EFIN ECON PGOV BE SUBJECT: BELGIUM: PETERCAM CHIEF ECONOMIST SPEAKS OUT ON FORTIS BANK REF: BRUSSELS 204 ¶1. (SBU) This cable should not be posted on the Internet. ¶2. (SBU) Petercam Chief Economist Geert Noels (protect) told econoffs on February 19 that worries about Fortis' health are largely unwarranted, in his opinion. Petercam is Belgium's largest merchant bank, and has very good contacts both in the political and the financial world. Noels stressed that the drain of cash which affected Fortis in late September-early October of 2008 mainly originated in the Netherlands, and since the Dutch Government has taken over Fortis Netherlands' activities, that this is no longer an area of concern. Furthermore, Noels said, the toxic assets (which he defined as 'anyone or anything unable to repay its debt') were no longer with Fortis Bank, but at the Fortis Holding company, which also holds insurance and other non-banking assets. ¶2. (SBU) Noels thought the Government of Belgium (GOB) and French bank BNP Paribas would finalize their October 2008 deal (whereby BNP would buy, inter alia, 75 percent of Fortis Bank from the GOB) before the February 28 deadline, thus creating one of the largest European banks. The near rock-bottom stock price of the Fortis Holding was completely irrelevant in this context, he said. Noels believes the GOB wants to make the sale to BNP because the GOB realizes it is not qualified to run a bank, and first and foremost, it fears that two other troubled Belgian banks, KBC and Dexia, would then also knock on its doors, with the GOB's pockets were not deep enough to rescue three banks. Furthermore, Fortis issues are eating up too much of the Government's time, to the serious detriment of other government business. Noels said that the possibility of further leakages (e.g., fleeing depositors) from Fortis Bank could not be excluded, and therefore "rebranding" the bank through new ownership, whether BNP Paribas or eventually another banking group, was essential to both keep current depositors as well as to attract new ones. Noels pointed out that contrary to U.S. bankruptcy legislation, when a Belgian Bank goes bust, the National Bank of Belgium immediately takes over its operations, i.e. no accounts would be frozen. Finally, Noels also added that he deplored the shareholders' vote of last week (reftel),and stressed that most of the 'no' votes came from abroad, i.e. China and the Netherlands. Furthermore, the vote of the Board of Directorsis what matters and it trumps any shareholder vote. ¶3. (SBU) From a more global perspective, Noels said he thought that there were really no good commercial banks left, and warned of the problems facing the City of London, which had taken up an extraordinary amount of synthetic and other CDO's which now have proved to be extremely toxic. He thought the bad bank concept should be worked out at a global level, perhaps by the IMF, given the global consequences of the financial crisis. He warned against premature banking nationalizations, and claimed that pricing to market of the toxic assets was still impossible since there was no market. He felt that some more time was needed to determine the price of these assets (price to market),and that panic was a bad motivator: 'we are now dealing with issues that will affect the wealth of our children, and people should set ego and prestige aside to save the system', he said. He referred to the Latin American banking crisis of 1980's as an example, when several US banks were technically insolvent, but regulators let them grow their way back into solvency. Regulators should consider this example when thinking about whether to nationalize banks. ¶4. (SBU) Noels also denied that some of the regulators had 'not seen this (financial crisis) coming', pointing out that there had been several reports warning of the imminent disaster. For some reason, most of these reports unfortunately got stuck at the political level, he said. Nevertheless, he felt that a European initiative regarding rating agencies was inevitable. More specificall, he warned against politicians 'first overpromising, then underdelivering'. BUSH .