06 August, 2009

Belgium Bank Mergers & Acquisitions (Fortis/ ageas)


Photo: Hong Kong's financial-centre status began to take off in the early 1980s, which coincided with a major expansionary phase of many European and American banks. The secondary school that I attended, Newman College, interestingly kept their account at the Hong Kong unit of Belgian bank Banque Belge pour l'Etranger, S.A. These two receipts show the nominal tuition (about USD $3) that my parents paid each year.

As part of the Société Générale de Belgique group (later Générale de Banque), Banque Belge pour l'Etranger eventually became part of the Fortis S.A., which was then acquired by France’s Banque Nationale de Paris.


ageas / Fortis Holding S.A./NV (Fortis S.A./NV)

Belgo-Dutch bancassurance group Fortis S.A. was formed in 1990 when Dutch insurer NV AMEV merged with Dutch bank VSB Groep to form AMEV/VSB. Later in that year, Belgian insurer AG Groep joined in, marking the first cross-border merger in the European financial services sector. The new entity took up the new name Fortis in 1991. In 2008, Fortis became de facto bankrupt and the banking operations were split and sold to the Dutch government and BNP Paribas. Fortis Holding kept part of the insurance operations and renamed itself ageas in 2010. Since this page is dedicated to banking history, emphasis is placed on the banking side of Fortis's history rather than the insurance side. Readers interested in the insurance part of Fortis are advised to visit ageas' corporate website.


AMEV

In 1847, a funeral fund was created in Utrecht (Netherlands) to allow a person to contribute (prepay) a premium of a few cents a week towards funding the eventual funeral cost of the contributor. In 1883, life insurance products were added to the funeral fund company, now known as Levensverzekering Maatschappij Utrecht (Life Insurance Society Utrecht), or commonly known as "De Utrecht". In 1920, the families that owned De Utrecht placed their business holdings under a new company called Algemeene Maatschappij tot Exploitatie van Verzekeringsmaatschappijen, or AMEV (loosely, the Insurance Development Company).


VSB Groep

VSB can trace its history to 1817 when the Maatschappij tot Nut van ’t Algemeen (Society for the Promotion of the Common Good) was established. The society's mandate was to promote educational and social welfare, and to encourage savings for the working class through its savings bank facilities. In the 1980s, legislation changes in the Netherlands allowed savings banks to expand their business beyond the traditional personal savings and residential mortgage markets. This essentially eliminated the distinction between savings banks and general (or trading) banks, which could receive deposits and make loans to businesses. In 1981, Vereniging Centrumbank (Amsterdam), Spaarbank Rotterdam and Bondsspaarbank Breda amalgamated and began operating under the name Verenigde Spaarbank (or VSB Groep) in 1983. The name means United Savings Bank in English.


AG Groep

In 1824, the Maatschappij van Algemene Verzekeringen op het Leven, de dotale fondsen en de overlevingen (roughly, the General Life Insurance and Survivors Fund Society), or AG Leven, was created in Belgium. It was followed in the 1830 founding of Maatschappij van Algemene Verzekeringen tegen de gevaren van brand, or AG Brand, which offered fire insurance. Gradually, accident insurance policies and mortgage loans were added to the product mix. In 1967 AG Leven and AG Brand combined to form AG Groep. In 1990, AG Groep joined the AMEV/VSB group and adopted the new name Fortis S.A. (meaning “strong” in Latin) in 1991.


Generale Bank / (Société) Générale de Banque (including Banque Belge pour l'Etranger)

In 1815, following the defeat of Napoleon, Belgium and the Netherlands gained independence from France and became a single country known as the United Kingdom of the Netherlands. In 1822, the Algemeene Nederlandsche Maatschappij ter Begunstiging van de Volksvlijt was founded to promote the development of agriculture, manufacturing and trade. Eight years later, however, the Belgians seceded from the Netherlands and gained independence. The Belgian side of the business became known as Société Générale de Belgique to offer corporate banking services. Société Générale, as it was commonly known (no relation to the French bank with the same short name), was pivotal in financing many of Belgium's early long-term industries. By the 1860s, the bank was said to hold 20% of the capital of Belgium's joint-stock companies. International operations flourished after 1872 when Société Générale took part in the creation of the Paris-based bank Société française et belge de Banque et d'Escompte.


Perhaps surprising to many, the Belgian bank's first expansion outside of Europe happened in China in 1902, when the Banque Sino-Belge (Chinese-Belgian Bank) was established in Shanghai, Beijing, Tianjin and Wuhan. The bank was set up specifically to receive and handle the reparations that China was required to pay to Belgium, plus ten other nations, following the Boxer Rebellion between 1897 and 1901, when anti-foreign factions attempted to eradicate Western imperialism and Christian missions in China.  The launch of the Chinese branches marked the beginning of the bank's rapid international expansion. In 1909, the Banque du Congo Belge (Bank of Belgian Congo) and Banque Belge-Zaïroise (Belgian-Zairean Bank) were created in Belgian Congo, followed in 1911 by the creation of the Banque Brésilienne Italo-Belge (Italian-Belgian Brazilian Bank) in Brazil.

Offices were soon opened in London (1909), Sao Paolo (1911), Egypt and Montevideo (1912), Rio de Janeiro (1913) and Buenos Aires (1914).  Meanwhile, in 1913, the bank's operations in London, Egypt, China and several other countries were re-organized into the Banque Belge pour l'Etranger (roughly translated as Belgian Foreign Bank).  For a number of years, Banque Belge pour l'Etranger, like many foreign banks operating in China at the time, issued part of China's banknotes.  

Interestingly, Banque Belge pour l'Etranger's London office became a saviour to the Société Générale de Belgique group during World War I when it kept the operations going while Belgium was occupied by the German army.

Further expansion saw the Banque Belge pour l'Etranger opening offices in New York in 1917, and in Paris, Manchester and Cologne in 1919, Bucharest in 1920, Constantinople in 1924 and Hong Kong in 1935.  Back in 1919, parent bank Société Générale de Belgique was a major backer in the creation of the Banque Générale du Luxembourg, which eventually became Luxembourg's largest commercial bank.  In 1920, Société Générale de Belgique participated in the re-capitalization of Austria's Wiener Bankverein, which like many Austrian banks suffered heavy losses following the collapse of the Austro-Hungarian Empire at the end of World War I.

An interesting fact about Banque Belge pour l'Etranger's New York office was that it eventually obtained a local state charter and built a network of retail branches in Long Island.  It subsequently became known as Belgian American Bank and then European American Bank & Trust, and was first sold to Dutch bank ABN AMRO, then to Citigroup in 2001.

The start of World War II and the turmoil in China in the 1940s caused the disintegration of Banque Belge pour l'Etranger, as many markets fell into enemies' control.  During World War II, with Belgium itself under Nazi occupation, Banque du Congo Belge, the Belgian Congo subsidiary, became the provisional head office co-ordinating whatever limited operations for parent firm Société Générale de Belgique. 

Following the world-wide conflict, the only meaningful overseas operations of Banque Belge pour l'Etranger to resume were surprisingly in New York and Hong Kong, the latter of which remained part of the Belgian bank group until 2004, when it was sold to ICBC.

The rise of the middle class in the 1950s and 1960s led the Belgian bank to vastly expand into personal (retail) banking in addition to its traditional business of corporate banking. Personal savings and loans, and mortgage products were introduced.  Between 1965 and 1975, the Société Générale de Banque (a new name replacing the Société Générale de Belgique) opened many new domestic branches. In 1985, the retail bank was renamed Générale de Banque. Then, in 1988, Société Générale de Banque was taken over by Compagnie Financière de Suez, the company that once operated the Suez Canal. In 1998, Suez sold the historic Belgian bank to Fortis S.A., a rival Belgian bank.

Recent transaction(s):

  • In 1993, Fortis bought 50% of Belgium’s CGER-Banque and CGER-Assurances. ASLK-CGER traces its history back to the 1865 founding of the Caisse Générale d'Epargne et de Retraite (The Savings and Retirement Fund). [ASLK is the Dutch name of CGER.]
    In 1995, ASLK-CGER acquired SNCI-NMKN of Belgium. Société Nationale de Crédit à l'Industrie (NMKN -- Krediet aan de Nijverheid in Dutch) was established in 1919 and specialized in financing the shipping, steel, coal and textile industries. From the late 1980s, SNCI-NMKN began to offer banking services to private clients in addition to corporations.
  • In 1995, Générale de Banque acquired Crédit Lyonnais Bank Nederland (CLBN) from France's Credit Lyonnais for NLG 1.2-billion (USD $726-million). Credit Lyonnais Bank Nederland was involved in a corporate scandal and poor risk management that saw the bank lending more than USD $1.3-billion to Italian financier Giancarlo Paretti to buy Metro-Goldwyn-Mayer Inc. in 1990. Soon after his purchase, MGM went bankrupt, causing CLBN and parent company Credit Lyonnais well over USD $1-billion in loan losses.
  • In 1996, Fortis acquired Dutch merchant bank Mees Pierson NV from ABN AMRO Holding NV for Dutch Guilder 2.5-billion (USD $1.43-billion).
  • In 1997, Fortis bought another 25% stake in ASLK-CGER-Banque (including its CGER-Assurances subsidiary), bringing its total holding in ASLK-CGER to 75%.
  • In 1998, Fortis bought 98.2% of rival Belgian bank Générale de Banque (also called Generale Bank in Dutch) for USD $14.2-billion from Suez Lyonnaise des Eaux. Fortis beat out Dutch rival ABN AMRO Holding in the bidding war for Générale de Banque.
  • In 1999, the various banking operations of Crédit à l'Industrie, ASLK-CGER, Générale de Banque and VSB were consolidated under the new Fortis Bank brand.
  • Also in 1999, Fortis took full control of Belgian bancassurance firm ASLK-CGER.
  • In 2000, Fortis agreed to buy the 47% of Banque Générale du Luxembourg S.A. that it did not already own for Eur 1.62-billion (USD $1.59-billion). BGL was founded in 1919 by the Société Générale de Belgique and other investors.
  • Also in 2000, Fortis acquired the 80% of Dutch insurer ASR Verzekeringsgroep that it did not own for Eur 3.3-billion (USD $2.9-billion).
  • Also in 2000, Fortis raised its ownership in Belgolaise Bank, a Belgian bank focusing in the African market, from 62% to almost 100%.
  • In 2004, Fortis sold its Hong Kong network (known as the Belgian Bank since 1980) to the Industrial and Commercial Bank of China.
  • In 2005, Fortis purchased 93% of Turkey's Disbank for Eur 987-million (USD $1.28-billion).
  • In 2007, Fortis agreed to buy 50.48% of Hong Kong's Pacific Century Insurance from its parent PCRD for HKD $3.52-billion (USD $453-million, Eur 345-million). Fortis would also launch a general offer to all other shareholders at the same price, bringing the total value of the deal to HKD $6.98-billion (USD $897-million, Eur 683-million).
  • In October 2007, after a six-month battle with Barclays plc, Fortis S.A./NV, along with The Royal Bank of Scotland Group plc and Banco Santander S.A., won the control of ABN AMRO Holding NV with a Euro 70.0-billion (USD $101.1-billion) cash-and-stock offer. The deal was then the world's largest banking merger ever and consisted of 93% in cash and 7% in Royal Bank of Scotland shares. The tri-bank consortium planned to break up ABN AMRO's global operations with Fortis taking over ABN AMRO's banking business in the Netherlands, as well as its global investment management and private banking operations. Until the break-up was completed, Fortis owned a 33.8% stake in ABN AMRO, while The Royal Bank of Scotland owned a 38.3% stake, with the remaining 27.9% being owned by Banco Santander.
  • Late in 2007, Fortis sold its 8.23% stake in ICBC (Asia) to Industrial and Commercial Bank of China (ICBC) for HKD $1.92-billion (USD $246-million). Fortis had acquired the stake initially in 2004 when it sold its 22-branch Hong Kong network to ICBC (Asia).
  • In 2008, Fortis S.A. agreed to sell 50% of its global asset management arm Fortis Investments to China's Ping An Insurance for Eur 2.15-billion (CNY 24.0-billion, USD $ 3.39-billion.) Fortis Investments planned to change its name to Fortis Ping An Investments after the deal was closed. Fortis Investments, along with the asset management business it bought from ABN AMRO Holding in 2007, had Eur 245-billion (USD $386-billion) of assets under management. Before this partial sale, Fortis had written down Eur 2.7-billion (USD $ 4.1-billion) in sub-prime mortgage-related assets, and was badly in need of new capital. However, this sale agreement was rescinded in September 2008 after Fortis collapsed. China’s banking regulator also had denied Ping An’s proposed investment.
  • In 2008, Fortis agreed to sell its commercial-lending unit in the Netherlands to Deutsche Bank AG for Eur 709-million (USD $1.13-billion). The unit being sold was part of the ABN AMRO operations acquired by Fortis in 2007 and had a net asset value of Eur 1.01-billion. However, closing of the transaction was postponed indefinitely as the Dutch Central Bank had refused to grant approval pending a review of Fortis’ entire Dutch operations amidst the 2008 Banking Crisis.
  • Also in 2008, Fortis sold its 49% stake in Chinese fund manager ABN AMRO TEDA to Britain's insurer and bank Old Mutual for Eur 165-million (USD $244-million). Fortis had acquired the stake in ABN AMRO TEDA when it acquired ABN AMRO Holding's Dutch operations in 2007.
  • During the second half of 2008, Fortis was caught up in the global Banking Crisis. As financial institutions failed around the world from huge losses incurred from the U.S. real estate collapse, banks became unwilling to lend to each other, resulting in a sharp rise in the Libor rates (London Inter-bank Borrowing Rates). Banks that had over-extended themselves, including Fortis, experienced massive withdrawal of deposits from their clients, causing more stress to their capital base just when they needed more capital.
  • On 2008-09-29, the Belgian, Dutch and Luxembourg governments jointly rescued Fortis by providing Eur 11.2-billion (USD $16.2-billion) of emergency funding. The Belgian state agreed to buy 49% of Fortis' Belgian banking unit, Fortis Bank NV/S.A. for Eur 4.7-billion (USD $6.79-billion); the Dutch state agreed to buy 49% of the Dutch bank unit, Fortis Bank Nederland Holding, for Eur 4.0-billion (USD $5.78-billion); whereas Luxembourg agreed to buy 49.99% of the local unit Fortis Banque Luxembourg for Eur 2.5-billion (USD $3.61-billion). Fortis was also expected to auction off the ABN AMRO businesses that it had just bought in 2007 for more than Eur 24-billion. However, the most likely buyer, ING Groep, had announced that it was not interested in bidding for ABN AMRO’s global operations.
  • However, the massive cash injection from Belgium, the Netherlands and Luxembourg failed to quell widespread fears over Fortis’ solvency, and clients were said to be transferring their deposits to other banks. On Friday 2008-10-03, the Dutch government made a surprise announcement that it had agreed to nationalize the entire Dutch operations of Fortis S.A./NV for Eur 16.8-billion (USD $23.2-billion). The units bought by the Dutch government included all of Fortis Bank Nederland (Holding) NV, Fortis’s interests in ABN AMRO, insurer Fortis Verzekeringen Nederland NV, and Fortis Corporate Insurance NV. The Dutch government’s deal to buy all of Fortis’ Dutch banking and insurance operations replaced the deal to buy 49% of Fortis Bank Nederland for Eur 4.0-billion (USD $5.78-billion) announced just a week earlier.
  • Even though Fortis’s Dutch operations were not believed to be badly in distress, the Belgian-based parent Fortis SA/NV had been teetering on the brink of insolvency. The Dutch government said in a statement that the nationalization of Fortis Nederland and ABN AMRO was needed to stabilize the panicky Dutch monetary system. The deal gave the Dutch government the entire control of the bancassurance operations, which would make it much easier to sell than had the government only acquired a minority stake. The deal also allowed Belgian-based Fortis to receive badly-needed capital.
  • The loss of the more stable Dutch businesses, however, distressed the public confidence on Fortis even more so over the weekend. On Sunday 2008-10-05, the Belgian government stepped in for the second time in a week and pumped in another Eur 4.7-billion (USD $6.33-billion) to fully nationalize Fortis Bank S.A./NV to 100%. Belgium and Luxembourg then immediately sought help from French banking giant BNP Paribas S.A. Following hours of intense and frantic talks, BNP Paribas agreed to acquire most units of Fortis S.A./NV for Eur 14.5-billion (USD $19.5-billion). Under the agreement, BNP Paribas would buy 75% of Fortis Bank (Belgium) and 67% of Fortis Banque Luxembourg for Eur 9.0-billion (USD $12.1-billion), payable in BNP Paribas shares. BNP Paribas also agreed to buy all of Fortis’s insurance operations in Belgium for Eur 5.5-billion (USD $7.4-billion) in cash.
    Belgium had just taken full control of Fortis Bank S.A./NV hours earlier before brokering the sale to the French bank. Following the sale, the Belgian government would retain a 25% stake in the Belgian bank and hold an 11.6% stake in BNP Paribas.
  • As for Fortis Banque Luxembourg, BNP Paribas would acquire a 51% stake from parent firm Fortis S.A./NV, and a 16% stake from the Luxembourg government, which had acquired a 49.99% stake in the Luxembourg unit a week earlier for Eur 2.5-billion. Luxembourg would retain a 33% stake in Fortis Banque Luxembourg, and hold a 1.1% stake in BNP Paribas.
  • Following the sale, former parent company Fortis S.A./NV, to be renamed Fortis Holding, would only consist of Fortis’s minuscule international insurance operations outside of Belgium and Netherlands.
  • BNP Paribas would gain Fortis’s 1,458 branches in Belgium, Luxembourg, Poland, Turkey, France, and other countries except the Netherlands. It would also gain more than Eur 239-billion of customer deposits, making BNP Paribas the largest bank in the Eurozone based on deposits.
  • However, on 2008-12-12, a Belgian appeal court halted the sale of 75% of Fortis Bank S.A./NV, the sale of 67% of Fortis Banque Luxembourg, and the sale of all of Fortis’s Belgian insurance business to BNP Paribas. It was alleged that Belgian Prime Minister Yves Leterme had sought to influence a court into allowing the fire sale of Fortis. M. Yves Leterme resigned over the controversies, requiring the Belgian king to name a new, interim prime minister. Meanwhile, the latest court ruling required the sale be suspended for 65 days, citing that the Belgian government had not considered the interest of Fortis’s shareholders, nor allowed them to vote on the sale.
  • When the original deal between Fortis S.A./NV, BNP Paribas, Belgium and Luxembourg died, Belgium was holding 100% of Fortis Bank, which consisted of 100% of Fortis Bank Belgium and 50.01% of Fortis Banque Luxembourg, whose name was officially changed to BGL (clearly a short form of the old Banque Générale du Luxembourg name) to avoid further negative association with the Fortis name. The remaining 49.99% of Fortis Banque Luxembourg had been held by Luxembourg since October 2008.
  • On 2009-02-11, Fortis’s shareholders rejected the original agreement with BNP Paribas. Shareholders also rejected the sale of Fortis Bank Nederland to the Dutch government for Eur 16.8-billion back in October 2008, even though that sale had already been completed and was unlikely to be unwound. The rejection could open up potential lawsuits against the Dutch government for financial damages according to some legal experts.
  • On 2009-03-08, the Belgian government, Fortis S.A./NV (for clarity reason, hereafter referred to as Fortis Holding) and BNP Paribas reached a new agreement on the future of the Fortis group. The deal was still subject to a vote by Fortis’s shareholders and there were strong opposition from Ping An Insurance of China (which owned just under 5% of Fortis Holding) and other major shareholders according to media’s reports.
  • Under the new agreement, the Belgian government (which was already the sole owner of Fortis Bank Belgium) would transfer 75% of Fortis Bank to BNP Paribas for Eur 8.25-billion (USD $10.5-billion) in BNP Paribas shares, priced at Eur 68 per share. In addition, BNP Paribas would also pay Eur 1.375-billion (USD $1.75-billion) for 25% of Fortis Insurance Belgium from Fortis Holding. Finally, BNP would acquire a direct 16% stake in BGL from the Luxembourg state for about Eur 831-million (USD $1.06-billion) in BNP shares.
  • Following the approval by Fortis’s shareholders, BNP Paribas would own 75% of Fortis Bank Belgium (the remaining 25% continued to be held by the Belgian state), hold 16% of Luxembourg's BGL (the former Fortis Banque Luxembourg), control another 50.01% of BGL via BNP's 75% holding in Fortis Bank Belgium (the remaining 34% of BGL continued to be held by the Luxembourg government). BNP would also hold 25% of Fortis Insurance Belgium.
  • As of May 2009, Fortis Holding only consisted of 75% of AG Insurance (Fortis’ insurance operations in Belgium) as well as 100% of Fortis Insurance International. The demise of the Fortis financial empire was sad, painful, dramatic and swift.
  • In 2010, Fortis Holding renamed itself ageas.
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