BNP Paribas (BNPP) will become the
largest bank by deposits in the eurozone if, as is now expected,
Fortis shareholders agree revised takeover terms at a shareholders
meeting on 11 February.
The acquisition of Fortis’ banking
interests will give BNPP an extra 3.3 million retail customers in
Belgium and Luxembourg and increase its branch network by more than
1,400 outlets.
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Confirmation that BNPP and Fortis had agreed
revisions to the deal, originally announced in October last year,
came within days of BNPP reporting it would post a full-year net
profit of around €3 billion ($3.8 billion).
According to BNPP, its full-year 2008 results,
set for release on 19 February, will show its retail banking arm
performed strongly, with around 200,000 net new individual customer
accounts in France and 50,000 in Italy opened during the year.
Group assets increased by a net €10 billion.
But the bank’s corporate and investment
banking unit endured a painful fourth quarter and its pre-tax loss
of around €2 billion will result in BNPP as a whole posting a final
quarter net loss of around €1.4 billion.
The quarter also saw a net impairment of €400
million post-tax arising from losses on BNPP’s investment
portfolio.
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By GlobalDataThe French group estimates its Tier 1 ratio
was around 7.5 percent as of 31 December, a figure which will rise
to 8 percent if its shareholders approve at an extraordinary
general meeting a plan to issue €5.1 billion of preference shares,
which carry no voting rights, to the French government.
New retail revenue
streams
The addition of Fortis’ banking
assets will provide BNPP with new retail revenue streams as it
pares back its investment and corporate banking and increases its
dependence on retail banking. It will boost group deposits by
around €290 billion to almost €650 billion.
At a stroke, BNPP will jump from sixth spot in
the table of top eurozone-headquartered banks by deposits to the
number one position, displacing UniCredit (see chart
below).
The revised terms of the Fortis acquisition,
designed to appease the Belgian bancassurer’s shareholders, will
result in BNPP buying only a 10 percent stake in Fortis’ insurance
arm for €550 million rather than the whole business for €5.7
billion.
In addition to retaining the 90 percent
insurance stake, Fortis will retain its international insurance
activities, with an exclusive distribution agreement remaining in
place with BNPP for Fortis Insurance products until 2017.
The lack of Fortis’ shareholder approval to
the insurance division sale caused the Brussels Court of Appeals to
block the sale on 12 December, 2008.
The French bank’s deal to acquire 75 percent
of Fortis’ Belgian bank remains unchanged in an all stock
transaction now worth an estimated €3.6 billion, with the Belgian
government holding the other 25 percent.
As a first step, Belgium will nationalise
Fortis Bank, and then sell on to BNPP. The deal also results in the
Belgian state becoming the largest shareholder in BNPP with an 11.6
percent stake and two board representatives, as well as a lockup of
two years.
BNPP will also take a 12 percent stake,
instead of an originally agreed 10 percent share, in a unit holding
€10.4 billion of Fortis’ structured credit assets backed by a €5
billion guarantee from the Belgian government.In addition, the
revised deal entitles Fortis to receive any profit the Belgian
government makes on its holding of BNPP shares. Fortis estimates
the new terms would improve its cash position by around €700
million.
The amended agreement also commits BNPP not to
sell its 10 percent stake in Fortis’ insurance division prior to 1
January 2018.
The demise of Fortis, once Belgium’s largest
financial services group, remains among the most spectacular
banking collapses of the current economic crisis. On 22 January,
Fortis released interim estimated results for 2008 indicating a
potential loss of €19 billion to €20 billion for the full year. In
the first nine months of the year, the net loss was €14.1 billion,
including a €12.5 billion loss generated by the sale of activities
as part of the dismantling of Fortis.
In a statement, Fortis said the revised deal
creates “additional value for the Fortis shareholders… Downward
risks have been significantly reduced”.
