Fortis turmoil comes at worst time for Belgium

By Tony Barber in Brussels

Published: September 26 2008 19:19 | Last updated: September 26 2008 19:19

The turbulence at Fortis, the Belgo-Dutch banking and insurance group, could hardly have erupted at a worse time for Belgium, whose linguistic rivalries and disputes over regional autonomy are so intractable that the country has been in almost total political deadlock for 15 months.

Fortis is the leading provider of retail financial services in the three Benelux countries, holding about €94bn in customer deposits as of June. It is also a pillar of the Belgian establishment, with a history stretching beyond the country’s creation in 1831.
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Yet the ability of the political classes to respond to a crisis at Fortis is in question because of the atmosphere of crisis that has hung over Belgium since a general election in June 2007.

Politicians representing Belgium’s Flemish north and Francophone south are at such loggerheads that the government of Prime Minister Yves Leterme has been brought to its knees six months after he took office. More and more Belgians wonder aloud if their country will have no alternative to peaceful self-dissolution.

Although that prospect is remote, the divisions are making themselves felt in financial markets, where the spread between Belgian and German 10-year government bonds rose last week to its highest level since the euro’s launch in 1999.

Specialists on Belgium’s public finances and welfare state fear that the inability to reach agreement will make it hard to meet the challenges confronting the national pensions and healthcare systems.

But the troubles at Fortis have broader implications. Even before it joined the consortium to break up ABN Amro, it already had substantial retail and commercial banking operations in the Netherlands. With assets of €871bn at the end of 2007, Fortis’s balance sheet is larger than the GDP of either Belgium or the Netherlands. This has prompted some to question the ability of national governments to mount a state rescue, should one be necessary.

However, ABN Amro bankers stress that the Dutch bank is still owned by an acquisition vehicle, controlled by Royal Bank of Scotland of the UK, in which Fortis is a minority shareholder. Fortis is not due to take full control of the ABN Amro operations until the third quarter of 2009, though the Dutch central bank has the power to veto the move if it is sufficiently concerned about Fortis’ stability.

Mr Leterme’s inability to broker a regional autonomy deal prompted him to tender his resignation in July, but King Albert II declined to accept it and instead appointed three mediators to present fresh proposals.

No sooner had they done so last weekend than the NVA, a centre-right Flemish nationalist party, withdrew its support from Mr Leterme’s government.

“After 15 months of hard slog,” said Bart De Wever, the NVA’s president, “we’re back where we started and perhaps even further back than that.”

Additional reporting by Peter Thal Larsen in London

Copyright The Financial Times Limited 2008

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