Bloomberg

BNP Paribas SA, France's biggest bank, agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion), completing a breakup of the lender after a government rescue failed.

BNP Paribas will pay 9 billion euros in stock and 5.5 billion euros in cash for 75 percent of Fortis Bank Belgium, all of the Belgian insurance operations, and 67 percent of Fortis's bank in Luxembourg, the Paris-based bank said in a e-mailed statement today.

Governments from Brussels to Berlin are racing to shore up Europe's faltering financial institutions as the global banking crisis escalates. In Germany, the government and the country's banks and insurers agreed yesterday on a 50 billion-euro rescue package for commercial property lender Hypo Real Estate Holding AG, after an earlier agreement fell apart. European leaders meeting in Paris this weekend pledged to bail out their own nations' banks, while stopping short of a regional rescue effort.

``We set out to defend the interests of the bank and its depositors,'' Belgian Prime Minister Yves Leterme said at a press briefing in Brussels late yesterday. These measures ``will provide the means for Fortis Banque to develop.''

Gaining Customers

The Belgian state will have an 11.6 percent stake in BNP Paribas, and Luxembourg a 1.1 percent holding, after the purchases are completed. Belgium will appoint two new members to the French bank's board. Chief Executive Officer Baudouin Prot, at the press conference last yesterday, said Paris-based BNP will probably keep the Fortis brand in Belgium.

The French bank will gain about 3.3 million retail clients in Belgium and Luxembourg, as well as 1,458 branches, including those in Poland, Turkey and France. BNP Paribas will also acquire Fortis's Belgian insurance business, and its investment management operations, private banking, merchant banking and consumer finance operations, all outside the Netherlands.

``This transaction provides BNP Paribas with the opportunity to roll out further its integrated banking model in Europe,'' the company said in the statement. ``BNP Paribas will have two new domestic markets.''

BNP Paribas has been able to make acquisitions after suffering smaller subprime losses than rivals such as Deutsche Bank AG and UBS AG. The French company agreed in June to buy Bank of America Corp.'s prime brokerage unit, which caters to hedge- fund customers, for as much as $300 million.

Ringfenced Assets

Under the terms of the deal with Belgium, Fortis will split off a 10.4 billion-euro portfolio of structured products into a separate entity. The remaining Fortis holding company will have a 66 percent stake in that portfolio, the Belgian government 24 percent, and BNP Paribas 10 percent. Fortis will also hold onto its international insurance operations.

Fortis shares will be suspended on Euronext markets, Belgium's stock market regulator CBFA said in a statement. Trading will resume as soon as Fortis investors have had the opportunity to analyze the impact of the agreement between BNP Paribas and the Belgian government, according to the statement.

Fortis, formerly the largest Belgian financial-services firm, received an 11.2 billion-euro capital injection from Belgium, the Netherlands and Luxembourg last week. The Dutch government took control of Fortis's units in the Netherlands for 16.8 billion euros on Oct. 3 after deciding the initial rescue didn't go far enough.

Fortis became a casualty of the global financial turmoil after pouring 24.2 billion euros into the acquisition of ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.

Failed Rescue

In the Sept. 28 rescue that went awry, the three Benelux governments agreed to put capital into Fortis by purchasing minority stakes in the banking units in each country. Fortis also planned to sell ABN Amro's private-banking and Dutch retail banking units, which hadn't been integrated.

As clients withdrew money and Fortis had trouble obtaining loans, the Dutch government decided to buy Fortis Bank Nederland Holding NV, Fortis Insurance Netherlands NV and Fortis Corporate Insurance NV, and become owner of the company's holding in ABN Amro.

``Fortis as a whole is a strong company with regards to capitalization, that's still the case and that also goes for the Belgian arm,'' Dutch Central Bank Governor Nout Wellink said on Dutch television yesterday. ``But it has become a plaything of the broken waters.''

Governments are protecting banks as the financial crisis that drove Lehman Brothers Holdings Inc. and Seattle-based Washington Mutual Inc. into bankruptcy widens. Ireland's government is guaranteeing banks' deposits and debts for two years, seeking to restore confidence in the country's financial industry.

Last week, Belgium and France threw Dexia SA a 6.4 billion- euro lifeline and Britain seized Bradford & Bingley Plc, the U.K.'s biggest lender to landlords.